As readers of this New York bankruptcy law blog may know, Chapter 7 bankruptcy and Chapter 13 bankruptcy have different processes and end goals. Chapter 7 bankruptcy, also known as liquidation bankruptcy, sells off a debtor’s possessions with the end result of satisfying creditors and leaving the former debtor with a clean financial slate. Chapter 13 bankruptcy, however, allows a debtor to keep his possessions and reorganize his debts into manageable payments for the satisfaction of his outstanding obligations.
A reader may wonder if or how bankruptcy exemptions would factor into Chapter 13 filings. Whereas a debtor stands to lose many possessions in Chapter 7 and may need legal protections to keep his home, car and other pieces of personal property, in a Chapter 13 filing it may appear that a debtor is under no threat of losing those items that he owns. While this is generally true, exempt property plays an important but different role in a Chapter 13 matter.
During a Chapter 13 filing, a debtor and the court hearing his matter may identify exempt property in the debtor’s possession. Once all of the exempt property is identified, the court may then evaluate the remaining non-exempt assets in the debtor’s possession. From that evaluation the court, debtor and creditors may assess how much and how quickly a debtor may be able to pay off his reorganized debts.
Though a debtor may not lose property in Chapter 13 bankruptcy like he could in a Chapter 7 filing, identifying bankruptcy exemptions in an exemption plan can reduce the size of his non-exempt holdings and give creditors a reasonable valuation of the debtor’s ability to repay his obligations. Please recognize that the information contained in this post is generalized and is not intended to be read as specific legal advice about bankruptcy. Anyone with questions about bankruptcy exemptions may seek out his own advice relevant to his particular legal matter.
Source: FindLaw, “Exempt Property in a Chapter 13 Bankruptcy,” accessed on Jan. 11, 2015