People’s biggest fear going into bankruptcy is that they will lose their property. The fact is, that the bankruptcy laws are designed so that you can keep your property. Bankruptcy would not work if people lost all of their property. In fact, the vast majority of bankruptcies are what is called “no asset bankruptcies.” In these no asset cases, the debtor keeps all of their property.
Bankruptcy exemptions allow you to keep your property. The chapter 7 trustee can collect all “non-exempt” property, liquidate it, and distribute it to creditors. But the Debtor gets to protect their property with exemptions. The issue is always how much equity you have in the property.
For instance if your home is worth $400,000 and you owe $300,000, then you have $100,000 in equity. The Washington State homestead exemption allows you to protect $125,000 in equity. That means the trustee cannot take your house. There are all kinds of exemptions for things like cars, clothing, household goods, pensions, 401(k) plans, IRAs, life insurance proceeds, etc.
Generally, the only people that have to worry about the trustee taking their property are people with very valuable property like art work, jewelry collections, large amounts of cash, and things like that. Since most people do not have that kind of unusually valuable property, they have nothing to worry about.
The best way to determine your exemptions is to contact a qualified bankruptcy attorney. If you think that you have very valuable property, then a bankruptcy attorney can talk to you about an asset protection bankruptcy.