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Does bankruptcy mean I have to give up my property?

After months or years of trying to stay afloat, something gives and keeping one's head above water just isn't possible anymore. While bankruptcy may be the lifejacket that one needs, it can be a highly trying and emotional time in anyone's life. One particularly hard hurdle to overcome is the forfeiture of assets that comes along with certain types of bankruptcies. The type of bankruptcy an individual is going through can make a world of difference.

Chapter 7 bankruptcy essentially places your assets and debts in the hands of the court. This means that you cannot sell or even give away any property you own at the time of filing. The court's power even extends to debts, meaning that a pre-filing debt cannot be paid off without the courts consent. Property is determined to be either exempt or non-exempt. Exempt property is protected from the bankruptcy and forfeiture, but non-exempt property can be sold by the bankruptcy trustee to pay off creditors or abandoned in unique cases. Due to the financial situation of most filers, many Chapter 7 bankruptcies are completed as "no-asset cases," which means that no property has to be forfeited.

Chapter 13 bankruptcy varies from Chapter 7 bankruptcy because its purpose is not to eliminate a person's debts, but to reorganize them and create a payment arrangement based on future earnings. Since the bankruptcy process essentially works as a repayment plan, property is not repossessed by creditors, but may be forfeited by the debtor if he or she chooses. As in Chapter 7 bankruptcy, there is a classification of property as exempt or non-exempt. Non-exempt property is used to help determine the amount that must be paid back to one's creditors.

Asset forfeiture plays an important role in any type of bankruptcy. In a Chapter 13 bankruptcy, it can make the difference between a debtor being able to afford the bankruptcy's repayment plan or not.

Source: FindLaw, "Chapter 7 Bankruptcy," accessed on October 8, 2014