on Tue Feb 3,2015 14:56:57
We've all heard anecdotal stories about what happens when somebody files bankruptcy. Such stories frequently involve two irreconcilable motifs: (1) "I know a guy who filed bankruptcy and the court took everything that wasn't nailed down", or (2) "I know a guy who filed bankruptcy and he got to keep everything he owned." Obviously, both of these can't be simultaneously true. Which is correct?
Irrespective of whether somebody files bankruptcy, we all possess two basic types of property, which are defined in the law. Note that "property" means everything you own, not just real estate, and includes your clothing, your furniture, your car, even your eye glasses and the food in your house. The two basic types of property that everyone possesses are "exempt" and "non-exempt." Neither the bankruptcy court, nor most creditors, can take exempt property away from you. Creditors and, if you file bankruptcy, the bankruptcy court, can take non-exempt property away from you, sell it, and use resulting money to pay your debts.
Depending on exactly what type of property someone owns, it is entirely possible they were allowed to keep all of it when they filed bankruptcy. This is because, if all of their property was "exempt" under applicable law, the bankruptcy court is not allowed to take any of it. Conversely, if someone who owns a great deal of non-exempt property files bankruptcy, it is possible the court may seize it.
Note the caveat that "most" creditors cannot seize property that is classified as non-exempt under applicable law. This prohibition does not apply to taxes owed to the Internal Revenue Service, nor does it apply to certain child-support situations. It is essential that you discuss with an attorney the specific property exemptions available to you in your state.