What is a Chapter 7 bankruptcy case and how can I protect my property?

A chapter 7 bankruptcy proceeding is the most common type of bankruptcy case. It is a liquidation proceeding or sometimes called a "straight bankruptcy". A liquidation proceeding sounds intimidating - like all of your assets will taken from you and sold to pay off your creditors. Do not fret- this is not the case. What happens in a chapter 7 case is your non-exempt assets will be sold and the proceeds will be utilized to pay off your creditors. When a chapter 7 case is filed, a chapter 7 trustee is appointed to administer the chapter 7 estate. A chapter 7 debtor (the person who filed for bankruptcy) can protect his/her assets by claiming exemptions allowed under the law. Depending on what state the debtor is located in, the debtor may claim the exemptions offered under state law or the exemption scheme offered under the Bankruptcy Code. So, the debtor will have to choose whether to claim the exemptions under state law or the bankruptcy code. There are a whole bunch of exemptions that are offered up to a certain amount. The law allows these exemptions because it does not want to take all of your property away from you when you file. The purpose of bankruptcy is to allow you to discharge your debts and get a fresh, new start. If all of your property was sold through the bankruptcy - that would not be giving you a fresh, new start. So, the reality is in most chapter 7 cases, there are no non-exempt assets available for liquidation. Let me demonstrate how this works. Let's say a debtor is filing a petition in New York because the debtor lives in Nassau county in New York. Under the New York State scheme of exemptions, a debtor who lives in Nassau county can claim an exemption in connection with the equity in his/her home up the amount of $170,825.The debtor can claim an exemption. Under New York State law, the debtor is also entitled to claim up to $4,550 as exempt for a motor vehicle and for clothing, furniture, books and other items, the debtor is allowed an exemption of up to $11,375.00. Please bear in mind that these exemption amounts are changed periodically. The exemptions offered under the federal bankruptcy law vary from the exemptions under state law. For example, under the bankruptcy code, the homestead exemption is only up to $25,150. So, if you have a lot of equity in your house, it would be more prudent to claim the exemptions under New York state law. However, the federal bankruptcy exemptions offer a generous "wild card" exemption where you can claim an exemption for any property up to the amount of $13,900 provided you do not claim the homestead exemption. This is all part of pre-bankruptcy planning. When you complete your petition, you need to claim exemptions in Schedule C of the petition. Determining which set of exemptions to claim is important because that will determine whether you keep your assets. if you do not claim the exemption, you can lose the asset. A chapter 7 filing offers you the opportunity to discharge debts that may be discharged in a bankruptcy case. This means you will not be legally obligated to pay those debts. In sum, the goals of a chapter 7 case for a debtor is to retain his or her assets by claiming exemptions while achieving a discharge of his/her debts.