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Bankruptcy May Be Your Option

Will I lose all of my property if I file for personal bankruptcy?

Most people want to know whether filing for bankruptcy will leave them destitute, stripped of all of the property and possessions that they have spent a lifetime acquiring.

In general, the answer to that question is no. An experienced Oklahoma bankruptcy attorney can often help make sure that you do not lose your property during the personal bankruptcy process.

The federal bankruptcy code was enacted with the recognition that sometimes people end up struggling due to financial challenges and unexpected life events. The purpose of the law was to give people a helping hand out of those difficulties, not to leave them with nothing. Therefore, both federal and state bankruptcy laws allow certain exemptions for the value of property that is necessary for living.

These exemptions include specific amounts for cars, homes, household goods, tools of the trade, clothing, jewelry, and other items. Importantly, the full value of many retirement accounts are exempt as well.

There are generally two types of personal bankruptcy, Chapter 7 and Chapter 13. Which type an individual should choose depends on several factors. One of those factors is how much property that individual owns.

If all of the value of a person's property is covered by the allowed exemptions, Chapter 7 may be a good option. Chapter 7 is also called "liquidation" bankruptcy, in which the bankruptcy trustee takes all nonexempt property and sells it to pay creditors. If there is no such property, there will be nothing for the trustee to take.

However, if a person has a substantial amount of property in excess of the value of the allowed exemptions, Chapter 13 might be the best option.

Chapter 13 is also called "reorganization" bankruptcy because it allows an individual to keep property while reorganizing his or her debts. This is done by entering into a payment plan in which payments are made over the course of 3 to 5 years to the court according to the debtor's ability to pay.

The only drawback is that there is a fairness to creditors test that must be met. This means that the debtor must pay at least the value of all nonexempt property over the course of the bankruptcy plan. As long as that requirement is met, a Chapter 13 debtor can keep all of his or her property, regardless of value. 

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