After a recent health scare, you now have an unexpected medical debt to add to your student loan debt, both of which push your finances to the brink. If you file for bankruptcy, what do you stand to lose?
Bankrate explores what creditors may take to offset your debt. While deciding whether to file, learn how your life may change.
The bankruptcy estate
When you file for bankruptcy, you have a bankruptcy estate, which represents all possessions, property and income that creditors have a right to. For real estate, besides property that you own when you file, even property you expect to receive later as part of an inheritance becomes part of your bankruptcy estate.
Say that you gifted, transferred or sold real estate four years before filing, but you did not receive “reasonably equivalent value” as payment. Under those circumstances, you may lose that property after you claim bankruptcy.
The estate includes owed tax refunds, divorce settlement proceeds and income you expect to receive. Say that 90 days before filing, you paid off at least $600 of debt. If so, creditors may claim that repayment for themselves.
The bankruptcy exemptions
You do not have to worry about losing essential property. This includes your furniture, main home, vehicle, retirement accounts and tools or equipment you need for work. While bankruptcy has exemptions, you should understand the latest dollar limits. Consult with a professional to learn whether to apply for federal or state exemptions. Different bankruptcy chapters have different property exemptions.
Educating yourself on bankruptcy may help resolve your fears and anxieties about the process. Also, by learning your rights, you may better protect your rights.