How And Why Can You Keep Property In A Chapter 13 Bankruptcy?
In reality, as we have written numerous times in the past, most people will not lose any property in their bankruptcy. That’s because bankruptcy provides people with a lot of exemptions, which allow them to keep property, and because most debtors simply don’t own a lot of property that has significant value (at least, not as much value as they think their stuff is worth).
But sometimes, people do own property that has value, and value that exceeds the property that is exempt, or protected, in the bankruptcy. They could lose that property in the Chapter 7—or, you may hear many bankruptcy lawyers say, they can keep that property if they file a Chapter 13.
But how do you keep property in a Chapter 13? When can you keep property in a Chapter 13?
Chapter 7 and Property
Let’s first look at a Chapter 7 bankruptcy. Let’s assume you have a valuable instrument collection, worth $10,000. Let’s assume that there are no exemptions on these instruments, so you risk losing all of them to the bankruptcy trustee to pay off your outstanding debts.
In theory, you could just offer the trustee $10,000, and keep the instruments.
The obvious problem here is twofold: First, you probably don’t have $10,000 just sitting around. Secondly, if you did have $10,000 laying in an account somewhere, there’s a good chance that that $10,000 would also be non-exempt, and thus, would go to the trustee—in other words, that $10,000 isn’t really yours anyway, it is property of the bankruptcy estate, so you couldn’t give it to the trustee to “buy back” your instruments even if you wanted to.
Chapter 13 and Your Property
But Chapter 13 solves this problem. Yes, you still have to pay for your instruments. However, instead of the near-impossible task of coming up with $10,000 right on the spot, you now can pay that $10,000 over the course of your Chapter 13 payment plan, which is between 3-5 years.
You have to be able to afford whatever those payments come out to be, as well as whatever else may be in your Chapter 13 repayment plan. However, if you can do that, at the end of your plan, your debts are discharged, and you keep your instruments.
Even better, because you’re “buying back” your instruments over the course of the plan, you have the ability to argue what the buy-back price should be. Are the instruments old, outdated, or need repairing? You can argue you should only repay $5,000 or $6,000, instead of the full $10,000.
The less the instruments are worth, the less you have to earn to qualify for the plan, and the more likely it is that your plan gets approved—with you keeping your property when it is all over.