With Chapter 7 bankruptcy, the goal is to pay off the debt. This is done by liquidating assets. For example, someone who owns an $80,000 sports car may have to sell it and use the proceeds to pay off some of their debt. If that doesn’t cover the entire amount, the rest of the debt can be forgiven.
But people are often worried about filing for Chapter 7 because they think it’s going to leave them with nothing. They want the financial freedom that comes with absolving their debt. But they don’t see the point in getting that financial freedom if it means they don’t have any assets to their name. Is this what happens?
A common misconception
This is actually one of the more common misconceptions that people have about Chapter 7. You do have to liquidate assets and use the money to pay off some of the debt before the rest is waived, but you do not have to sell all of your assets. There are numerous exemptions. They are not automatic, but you can request to use them.
For example, there is a homestead exemption for the equity in your house, an exemption for the main vehicle that you drive to get to work and an exemption for the tools of your trade. New Jersey also offers exemptions for things like jewelry or family heirlooms.
At the end of the day, the goal is to force you to sell all of the assets that you do not need. That’s why the $80,000 sports car is used as an example above. If someone had a daily driver that they needed in order to continue making money, they probably would not have to sell that car. But if they had an expensive second car, a second home or other items that are not necessary, then these will not qualify for exemptions.
Getting the process started
Additionally, Chapter 7 isn’t the only option. Chapter 13 bankruptcy doesn’t liquidate as many assets, but creates a repayment plan. Just be sure you know exactly what options you have and what steps you will need to take.