Why does what you own affect a Chapter 13 bankruptcy?
A Chapter 13 bankruptcy differs in a lot of ways from a Chapter 7 bankruptcy. One of the major differences, of course, is that Chapter 7 is considered a liquidation — you have to give up the right to any property that the court deems unnecessary, or nonexempt. Nonexempt property can be seized and sold to help repay your creditors at least something. In exchange, all of your debts are forgiven.
In a Chapter 13 bankruptcy, you work out a plan with the court to repay all or most of your debt within 3-5 years. There’s less need to worry over what property will be exempt and what will not — with only a few exceptions, you tend to get to keep what you own.
However, your property still has an important role in your bankruptcy, even in a Chapter 13 case — and exemptions are still important.
Once your property has been sorted into that which is considered exempt, or essential to your needs, your remaining property is nonexempt — or nonessential. The actual value of that nonessential property can then be used as a baseline for what you need to repay your debtors over the course of your bankruptcy plan in order to meet Chapter 13 obligations.
For example, say that you own a small personal plane worth $100,000. That would be considered nonexempt property unless you could exempt it somehow as necessary for your business or some other reason (which is unlikely). That $100,000, if it’s your only nonexempt property, becomes the baseline for what you need to repay your creditors over the course of your Chapter 13 repayment plan.
It’s important to understand that other factors can also go into the decision when it comes to determining how much you ultimately have to repay, including your current income and the overall total of your debts — but you can definitely expect the combined value of your nonexempt property to be important.
That makes having the good advice of a Chapter 13 bankruptcy attorney important. He or she can help you look at your assets and possible exemptions with an eye toward how it will affect your overall case.
Source: FindLaw, “Exempt Property in a Chapter 13 Bankruptcy,” accessed April 07, 2017