When Colorado residents are struggling with personal debt, they may fear what will happen to their assets. This fear may lead many to hesitate when considering filing for Chapter 7 bankruptcy due to their belief that they may lose all of their assets.
Fortunately, while Chapter 7 does entail a process of asset liquidation, there are certain exemptions that are available that allow individuals to keep certain property through the bankruptcy process. Perhaps the most important of these is the homestead exemption which typically allows a person to keep a certain value of the home. These exemptions vary by state, as do the amounts that are allowed to be claimed as an exemption.
Even when considering exemptions, however, homeowners may be confused as to how the process plays out. For instance, because home values are increasing right now as a general matter, individuals may wonder how the increasing value will play into a bankruptcy filing.
Typically, Chapter 7 takes a snapshot of a person's finances at that given time which means all of the person's assets are listed as they exist on the date of filing. By waiting longer, however, in some circumstances, a person's home value theoretically could continue to rise. Nonetheless, while a trustee can wait a few additional months, particularly in cases where someone is on the borderline of being able to protect the home's equity, the trustee cannot hold the case open indefinitely to wait and see how the home value will be impacted over time.
Ultimately, these decisions will be made by the individual and the trustee in the bankruptcy. Accordingly, individuals should work with a qualified bankruptcy attorney to determine how to best protect assets and get the most out of bankruptcy.
Source: Fox Business, "How safe is my home in Chapter 7 bankruptcy?," Justin Harelik, Aug. 21, 2013