Chapter 7 bankruptcy is often called “liquidation bankruptcy” because it involves the liquidation of the filer’s nonexempt assets to satisfy his or her debts. Certain classes of assets are exempt from liquidation, which means that the filer’s bankruptcy attorney cannot sell them to recover liquid cash to satisfy the filer’s debts. Other assets are nonexempt, which means that they can be liquidated in a Chapter 7 case.
In short, exempt assets are assets that filers need to continue living safe, productive lives. Certain assets, like the filer’s primary home, are clearly exempt from liquidation. Others, like certain retirement accounts, are not as easy to discern. Below are a few ways to determine whether an asset is exempt from liquidation or not. If you are ever not sure about an asset’s exemption status, ask your bankruptcy lawyer.
Do You Need the Item for Work?
Items the filer needs for his or her profession are exempt from liquidation. These include work clothing and the filer’s car if he or she drives to work. If the filer has specialized equipment for work, such as tools to work as a mechanic or musical instruments to work as a professional musician, these are also exempt from liquidation.
How Did You Receive the Asset?
Money and credit received to cover basic needs, like food stamps, is exempt from liquidation. This also includes compensation received through a personal injury claim and money in a pension account. Generally, retirement accounts are exempt from liquidation, but this is not always the case. Discuss your retirement accounts in specific detail with your lawyer to determine if they could be subject to liquidation.
Do You Need the Item for Your Everyday Survival?
Like the assets you need for your job, the assets you need to conduct your everyday life are exempt from liquidation, as well. These include basic household items like appliances and personal goods. Clothing and jewelry, within reason, are also exempt from liquidation.
Recreational items, like a second vehicle, gaming systems, and other hobby-related assets are not exempt from liquidation in a Chapter 7 bankruptcy.
Work with an Experienced Mundelein Bankruptcy Lawyer
An experienced bankruptcy lawyer can be a valuable asset as you move through the bankruptcy process. Not only can your lawyer explain each step of the process to you and help you prepare for each, he or she can act as your advocate and if your bankruptcy trustee deems an item to be nonexempt to liquidation when it really should be exempt, your lawyer may be able to work to have it reevaluated. Contact our team at Newland & Newland, LLP today to set up your initial consultation in our office. We serve clients in the Arlington Heights, Palatine, Rolling Meadows, Libertyville, Mundelein, Buffalo Grove, Schaumburg, Elk Grove, and Itasca areas.
(image courtesy of Jesse Orrico)