Bankruptcy is intended to help good people out of bad situations. It can be frightening, daunting, and sometimes shameful, but it shouldn’t be. We are living in a time when the economy has recently bottomed out leaving many, many people faced with multiple creditors, endless collection calls, and no way to repay loans. If you are stressed about this process, you’re one of the good people struggling to make ends meet that bankruptcy laws are intended to help.
Bankruptcy has consequences, but it also has rewards.
Rewards of Bankruptcy
The rewards of bankruptcy come from the opportunity to start over, rebuild your credit, and the cessation of the endless calls from creditors and worrisome days about how to pay back all your debt.
Negative Effects of Bankruptcy
The negative effects of bankruptcy include bankruptcy’s negative effect on your credit score before you rebuild it. Your credit report will show that you have filed for bankruptcy for ten years. By obtaining new credit card accounts and making timely payments each month you will begin to rebuild your credit.
Determining What Assets You May Keep After Bankruptcy
Another consequence of bankruptcy relates to what assets you must give up and what assets you may keep in filing for bankruptcy. You may be surprised to hear that many people filing for bankruptcy are able to keep all or most of their assets.
Generally when people are filing for bankruptcy they do not own yachts, second homes, and other extravagant assets, which generally would be taken through bankruptcy for the benefit of creditors. People in such circumstances often, but not always, can find other ways of paying off creditors rather than bankruptcy.
Exempt Property
Certain property is considered exempt from being taken in bankruptcy. Exempt property or assets may include your primary home, one car, work equipment, a limited amount of jewelry, basic necessities like clothing, furniture, and appliances. Exempt property or assets may include pension payments, social security benefits, workers’ compensation benefits, retirement accounts, insurance payouts, unemployment payments, as well as many other types of property and assets.
What property and assets are exempt will depend on whether you are using the federal or state exemption list. You may not choose to file bankruptcy using both the state and federal exemption lists.
The federal list usually provides for more protection due to a catch-all provision. However, if you have a lot of equity in your home, the Minnesota list probably provides you with more protection.
What Happens to Non-Exempt Property in Bankruptcy?
If you have non-exempt property or assets, they will be liquidated, or sold, by order of the court. The money from the liquidation, or sale, is then used to pay back your creditors, proportioned to each based on the amount available and the amount owed.
However, many people filing for bankruptcy do not have non-exempt property, and therefore, there is nothing to sell.