Personal Property
Bankruptcy is a way for you to actually keep most of your personal assets and say goodbye to the creditors and debt collectors. The truth is that debt collectors cannot touch MANY of your assets when you declare bankruptcy, most are protected. The magic of this protection is exemption. Yes, some assets are exempt from seizure under the protection of the local bankruptcy laws. Now, the keyword in that last sentence was “local”. The bankruptcy exemption laws differ from jurisdiction to jurisdiction, so that means an asset exempt in Dallas might not be in New York; it all depends on the local laws. Sound complicated? Well, it can be, but that is even more reason to retain a law firm that specializes in your local bankruptcy laws. In Florida, the state law exemptions can be found in Florida Statutes Section 222. However, if you have moved to Florida within the past two years, you may instead be governed by the State you moved from or the federal exemptions. It is important to use the correct exemptions or you could waive your right to keep your personal property, vehicles or even your home. To understand the exemption process, it helps to know what type of debt you have. In bankruptcy, there are two types of debt: secured and unsecured.
Secured Debt
A secured debt has something tangible to back it up, such as a car, mortgage (house), or computer. If you default on the repayment of a secured debt, then (in theory) the creditor can physically liquidate the associated asset and use the proceeds towards the repayment of the debt. For instance, when a bank repossesses a car, the loan that defaulted is a secured debt.
Unsecured Debt
An unsecured debt is not backed up by anything tangible. This means that there is nothing to physically repossess and liquidate should you not pay the debt. This includes things like credit cards, medical bills, student loans, etc. Remember not to confuse a secured credit card with a regular or unsecured one. Even though it is a credit card, a secured credit card is a secured debt because there is something tangible for the creditor to seize should you default on the debt, which is your security deposit. All secured credit cards require a security deposit of varying amounts which serve as your collateral to the issuing bank. Secured cards are for people trying to repair or improve their credit rating, and they usually allow a credit limit close to, or less than, the amount of the security deposit.
Automatic Stay
If you are facing repossession of your property, then bankruptcy could very well be your best option. When you declare bankruptcy, the court notifies the creditor, and then they must immediately stop all collection efforts. This freeze is an automatic stay, and it can give you the time you need to work out a solution with the creditor or, in some cases, write the debt off in bankruptcy. It depends on the asset and local laws, but it might be your saving grace.
I assure you, declaring bankruptcy is not a smoke signal to creditors that you do not intend on paying your bills now or ever; it is quite the opposite. Instead, it tells them that you are serious about resolving your outstanding debt, and rebuilding your credit for the future. This takes time, and a commitment, but if you never start the process then you remain in your current predicament forever.
For further information about how a bankruptcy filing would impact you and your family, please contact Arkovich Law