March 9, 2010
What Can You Keep When You File Bankruptcy?
Many people file for bankruptcy and keep their homes and their cars. However creditors may sell property after a bankruptcy discharge is granted via repossession or foreclosure if a default under state law has been triggered allowing the sale of collateral for the loan.
When someone has to file bankruptcy, they don’t just get to keep their houses or cars without paying for them. While the underlying debt obligation to pay is discharge, the creditor retains the right to pursue the collateral if the debt is not paid for a default occurs. This may also depend on the type of loan, for instance a car may require reaffirmation but a reaffirmation for a mortgage may not be advised.
In a chapter 7 case, usually property that can’t be exempted is sold and distributed to the creditors by the trustee. However, at times property is burdensome or of little value to the Bankruptcy estate. In these circumstances, abandonment of the property is appropriate. If the case is going to be open for a while and pending the administration of assets, abandonment requires an affirmative act. However, only the trustee in a Chapter 7 bankruptcy case has the power to abandon an asset. For another party, such as a creditor or a debtor, abandonment requires a motion, which may be contested by the trustee. There is also currently at $250 filing fee for a motion to abandon property. Since the trustee has the discretion to abandon property, it makes sense, if possible, to negotiate the trustee’s ascent to the abandonment before filing a contested motion.
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