Asset Protection During Bankruptcy

If you have assets that you wish to protect through bankruptcy proceedings, the first thing you need to do is hire a bankruptcy attorney. These professionals will know exactly what you should and should not do to protect assets. Remember, some actions will be viewed as fraud by bankruptcy court, because if you move certain assets, they will assume you did so to defraud your creditors.

If you qualify for Chapter 7 bankruptcy, you are headed into a no-asset case. In this situation, you cannot give up your assets to the trustee. The "means of day-to-day living," such as your house, are often protected under Chapter 7. You will have to give up any money you have outside of your retirement accounts, but physical assets are almost always protected.

Your pension and 401(k) are also protected in a bankruptcy case. These are considered as not being the property of your estate, so you can hang on to them without taking any further action.

Outside of these two things, exemptions will vary form state to state. You must live in the state where you are filing for at least two years in order to use their exemption laws. If you have not lived in the state long enough, you will have to file bankruptcy under the laws of the state you lived in prior to your move. If you have not lived in any state for two years in a row, you will use federal exemptions.

Most people filing bankruptcy are most concerned with keeping their houses and cars. For your house, you will be able to keep it if you are not delinquent on the mortgage. If you are, then the property will go into foreclosure, and you will likely lose it. Sometimes, however, there is enough equity in the property to force you to sell the home to use the equity to repay what you owe. This varies tremendously from state to state. It also varies depending on whether you are filing Chapter 7 or Chapter 13 bankruptcy.

Your car, on the other hand, you will likely lose. If you still owe money on it, you may be able to keep it by reaffirming the debt to your lender and paying under the existing terms. However, if you have some equity for the car, you will likely have to surrender it to the trustee to be used to pay back your debt. If the car is an old junker with no equity in it, you might be safe.

Again, talk to a lawyer about your options. There are simply too many variables from case to case and state to state. Do nothing to try to protect your assets until you know what the exemptions and laws in your area are.