As a bankruptcy attorney, King Law Center regularly fields questions about what property one can keep when filing for Chapter 7 bankruptcy. Since Chapter 13 is known as a repayment plan, it makes sense that property owned by a debtor who files for Chapter 13 gets to keep it. But a Chapter 7 is called a liquidation, and that word connotes surrendering everything but the clothes on your back. In practice, that simply is not how it is. Most debtors keep everything they own...including their cars (whether they are paid off or not).
There are a few reasons why most people keep everything they own.
Firstly, most debtors in need of Chapter 7 are not wealthy, they do not have loads of assets. Indeed, if you did have a lot of cash-ready assets, you would have a lot of cash and probably not need a Chapter 7. This might be a simplistic answer, but there is a direct correlation between assets/worth and the need for Chapter 7 bankruptcy. If someone did have assets worth significant value, they would more properly file a Chapter 11 or a Chapter 13.
Secondly, the value assigned to property listed in Schedule B of your bankruptcy filing is a "garage sale value." This does not mean the value of the property if you bought a new version of it or even the replacement value if you were to buy it from someone else. It means that whatever you could get for it if you sold it, that is the value given to it. The reason for this is that the trustee who does take property from you for the benefit of creditors has to sell it. And the trustee very often auctions this property. The money earned at auction or otherwise sold is akin to what you yourself might earn at a garage sale, especially since this type of sale assumes that the property is second hand, and therefore, automatically "reducable" in price in the mind of a buyer.
Finally, the law allows you to exempt property from liquidation through the use of state or federal law. Some states only let its citizens use their state exemptions. Pennsylvania allows citizens to either use the Pennsylvania exemptions or choose to use the federal exemptions (used by people who have not domiciled in a particular state for the last 730 days and other instances, for example). These exemptions can be fairly broad and allow you to even keep a good amount of cash. Your home goods are exempt generally in excess of what their value is. Truth is, a used couch has value to you, but it has little resale/auction/garage sale value.
Contact an attorney today to see if you have one of these "no asset" cases. Most people do. The term "no asset" means that there is no asset that the trustee will take and sell. It makes the process simpler and easy for you and your case will progress more rapidly through the system. King Law Center can help.
