If you’re considering filing for bankruptcy you may have some fear that you are going to lose what possessions you have left. Usually that fear is unfounded with just minimal prebankruptcy planning. California’s exemptions are normally more than adequate for your middle class Californian. I’ve devoted an adjacent section to discussing the topic of exemptions at length.
There are really only two types of property in bankruptcy: real and personal. The real property is basically dirt or a structure attached to dirt. Raw land, condos, homes and even some timeshares fall into this category. Your personal property is everything else, from your money to your insurance to copyrights, patents, rights under contracts and wills and even the right to sue someone for money.
Much of your property you own free and clear. By contrast, your real property and your automobile may still be encumbered by a loan as it was pledged as collateral to secure the loan’s repayment. Large ticket items you bought using store credit cards, such as Best Buy, Sears and Nordstrom’s may also have a security interest against it by the terms of the credit card contract.
Standard Visas, MasterCard, Amex and Discover cards do not take a security interest in the items bought with them.
You get to choose what you do with your secured property in bankruptcy. It is less of an issue in Chapter 13 because you’re repaying more of your debt than you do in a Chapter 7. In a Chapter 7, you can choose to keep the property or give it back to the lender. If you keep it, and it is worth considerably less than the loan against it you can “redeem” it by giving the lender the cash value of the collateral. If you don’t have the cash you may even borrow it from lenders who specialize in this type of loan. Or you can just continue to make the payments.
A thorough discussion of this process is deferred until you become a client, and then we discuss this and the details and ramifications of this decision in more depth. At this juncture of considering the bankruptcy option, it suffices to know you can keep the property you want and can probably more easily afford after bankruptcy.
So people don’t lose their houses or cars because of bankruptcy. They often use bankruptcy to save them. The only way you will lose property you’ve taken loans against is if you cannot afford them any longer irrespective of the bankruptcy. Moreover, in certain instances, we can strip off liens in bankruptcy even without any payment.
It is often asked whether it would be a good idea to transfer property to a relative or friend before filing bankruptcy. The answer is unequivocally: No. Not only does the Trustee look for transfers and have powers to set them aside, you also have a duty to disclose them initially in your documents and later upon examination. It can also be a basis for denying you your discharge which is the essential purpose of your bankruptcy case. Moreover, in almost every instance where someone has proposed a transfer it has not been necessary to meet their goals. We offer free consultations where any concerns like this can be raised. So do not transfer property prior to consulting with a bankruptcy lawyer.
