Question # 3:  Can I keep my house and my car?

Almost all chapter 7 cases are called "no asset cases".  A "no asset" case doesn't mean that the person filing the bankruptcy doesn't have any assets.  It means that the person does not have to surrender any of his property to the trustee because his assets are protected by what are called exemption laws.  Exemption laws allow you to keep certain property so that you could start your new life. 

Generally, exemption laws will let you protect a certain amount of equity in your:

• home

• car

• furniture

• jewelry

• pension/retirement fund

• work tools

• life insurance

• alimony

• social security and disability benefits worker's

• compensation veteran's benefits

In some cases you may even have a wild card exemption allowing you to protect any property you wish up to a certain dollar amount. 

Secured property

It is not unusual to have some secured property debt. Secured property debts are those in which you put some property up as collateral. 

The most common secured debts are home loans and car loans.  The money you borrowed to make your purchase is secured by the home or car itself.  Thus, when you go through bankruptcy you need to inform the creditor who owns the home or the car what you plan on doing with the home or the car.

Your standard choices are:

1. Pay a lump sum balance, and keep the property (also know as redemption).
    

2. Return the property, and then owe nothing (also known as surrendering the property).
    

3. Agree in writing to keep the property, and keep paying on the debt (this is called reaffirming the debt, read Question 2.  Can I keep one of my credit cards).
    

Returning the property

When you return the property, a secured creditor may auction off the property.  Typically, this results in what is called a deficiency balance.  A deficiency balance is the difference between how much the creditor got through the auction, and the amount of money you owe on the original loan contract you signed with the creditor. 

However, since you have filed bankruptcy, and since you returned the collateral to the creditor, that deficiency balance is now unsecured.  As with most other unsecured debts, the deficiency balance will typically be wiped out in your bankruptcy, and the creditor is not allowed to sue you for the balance.

Thus, creditors can actually lose money if they take the property back.  For that reason they actually want you to keep the property.  When you keep the property they get to keep collecting your monthly payments and interest!

If you chose NOT to file bankruptcy, and you wanted to return the property, or the property was repossessed, the creditor may want to sue you and attempt to garnish your wages. 

Beware of other secured debts

An unfortunate situation that happens more often than it should, is where a person goes through a bankruptcy seeking to discharge his debts, but for some reason they are still being hounded by some creditors..

What most people don't know, and even some bankruptcy counselors don't know, is that many department store cards are secured cards.  That means that the property you buy with these secured cards still belongs to the department store until the goods are paid for. 

With certain department store credit cards, such as a furniture store, jewelry store, or electronics store, it is not unusual for them to have a secured debt. In essence, the item is not owned by the consumer until fully paid for.

Please note: If you have one of these cards you should talk to a qualified bankruptcy attorney.