In most circumstances, you can keep your house, car and most — if not all — of your property after filing for bankruptcy in Connecticut. The majority of people who file for Chapter 7 bankruptcy don’t give up any property.
This surprises many people, but the idea behind bankruptcy is hope, not despair. It can provide a second chance for people who might otherwise lose their homes and cars. It can help them avoid that common lose-lose scenario in which they lose their means of getting to work, then struggle to work and pay their bills.
What Can People Keep After A Bankruptcy?
First of all, there are several different types of bankruptcy. The two types, or Chapters, that individuals most often pursue are Chapter 7 and Chapter 13. Each has its own rules and requirements, but they both allow you to keep certain properties.
Importantly, you have to file for bankruptcy under federal bankruptcy law, but each state can create its own list of property exemptions. The result is that you can choose to file with federal exemptions or Connecticut’s state exemptions. In most cases, you’ll be able to retain more of your property if you choose to use the Connecticut exemptions.
You can only choose once if you’ll use the federal or state exemptions. You cannot pick and choose the exemptions that suit you best. That said, the federal guidelines provide 11 exemptions, including a continued interest in your house and car. The exact values can change over time. Compared to this, Connecticut lists over 20 different exemptions, including exemptions for:
- A greater measure of equity in your home than allowed by federal exemptions
- A continued interest in your car
- Your necessary clothing, bedding, food, furniture and appliances
- Any workers’ compensation, Social Security, unemployment or disability payments
- Your wedding and engagement rings
- Your retirement account
- Any tools, books or farm animals you need for your profession
This is not an exhaustive list, but it shows how people who file for bankruptcy are often able to hold onto more of their possessions than they expected. One of your goals when you file should be to work with an attorney who will help you make use of every exemption for which you qualify.
Chapter 7 Versus Chapter 13
Chapter 7 is the most common form of bankruptcy. In a Chapter 7 bankruptcy, you keep your exempt property and liquidate your non-exempt assets. In return, you have most of your unsecured debts cancelled. There are, however, asset limits that restrict who can file for Chapter 7. There are also some debts you may not be able to cancel. These secured debts include:
- Child support
- Recent student loans
- Past due taxes
However, medical debt and credit card debt are typically unsecured, and they are two of the most common reasons people turn to bankruptcy.
As an alternative, Chapter 13 works well for many people who may not qualify for Chapter 7. Under Chapter 13, the government helps you reorganize your debts. Then you make payments for a period of generally three to five years. In return, you typically receive forgiveness for a portion of your debt.
Which Path Is Best For You?
Most people who file for bankruptcy do so after they’ve already struggled a long time with their debt. It’s common to feel hopeless and alone. They may hesitate to file for bankruptcy because they fear losing their homes, cars or other essential property. They may worry about the hit to their credit or the stigma attached to filing.
The truth is that bankruptcy offers relief to many. It isn’t a sign of failure. Bad things can happen to anyone, but they don’t have to define us. If bankruptcy can provide a second chance, it’s worth pursuing. The best way to proceed depends on your individual circumstances, but the first step is always to start asking the questions.
The answer is intended to be for informational purposes only. It should not be relied on as legal advice, nor construed as a form of attorney-client relationship.
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