Although Chapter 7 bankruptcy proceedings are commonly referred to as “liquidation,” filers will not be required to liquidate every piece of property they own. In fact, they will be permitted to keep much of their personal property, even certain items of higher value, like their family home and car.
Exempt property is considered untouchable by the liquidation process. Meanwhile, non-exempt property will fall under the ownership of the bankruptcy estate, and the court will supervise its sale — and use the proceeds to pay off creditors that make valid claims against the estate.
Property in bankruptcy is made exempt based on the utility and necessity of the property to the bankruptcy filer. Exempt property in this respect is usually described as “necessities of modern life.” This kind of property could include the family home, motor vehicles used for work and daily life, work tools, appliances, furniture and more. Public benefits and pensions are also usually exempt, and so are personal injury award damages, clothing certain types of jewelry and a part of the filer’s earned but unpaid job wages.
A skilled attorney will try to classify as much of a bankruptcy filer’s property as exempt as is legally feasible. Interestingly enough, if this process is carried out successfully, most of the filer’s property can be preserved. However, every case is different and if the bankruptcy filer happens to own a lot of luxury items for example, he or she may have a hard time holding onto them through the bankruptcy process.
Kentucky residents who are avoiding Chapter 7 proceedings because they are afraid they will lose everything might have an incorrect understanding of what the bankruptcy process will mean for them. By speaking with a legal representative about bankruptcy, individuals can learn more about bankruptcy exemptions and what they will likely and will not likely have to sell in their bankruptcy proceedings.
Source: FindLaw, “Exempt vs. Non-exempt Property Under Chapter 7,” accessed June 10, 2016