One of the most common and stressful questions people ask before filing for bankruptcy is: “Will I lose my home, my car, or my business?”
The short answer? Not necessarily. Bankruptcy is designed to give you a fresh start, not to strip you of everything you own. In many cases, you can keep your most important property, thanks to something called bankruptcy exemptions.
In this article, we’ll break down what happens to your home, vehicle, and business assets during bankruptcy, the difference between Chapter 7 and Chapter 13, and how exemptions can help you protect what matters most.
What Are Bankruptcy Exemptions?
Bankruptcy exemptions are laws that protect certain types and amounts of property from being seized or sold in a bankruptcy case. These exemptions vary by state, and in some states, you can choose between federal and state exemption systems.
Common exempt items include:
- A portion of the equity in your home (homestead exemption)
- A set amount of equity in your car
- Essential household goods and clothing
- Tools of your trade (relevant for business owners)
- Retirement accounts and public benefits
Understanding what you can protect under the exemption rules is critical—and often the deciding factor in whether Chapter 7 or Chapter 13 is right for you.
What Happens to My Home in Bankruptcy?
Chapter 7 Bankruptcy and Your Home
In Chapter 7 bankruptcy, the court appoints a trustee to sell your non-exempt assets to pay creditors. But that doesn’t automatically mean you’ll lose your home.
If you’re current on your mortgage and the equity in your home is protected by your state’s homestead exemption, the trustee will likely let you keep your home. However, if you have significant non-exempt equity, the trustee could sell the home, pay you the exempt portion, and use the rest to pay creditors.
Chapter 13 Bankruptcy and Your Home
Chapter 13 allows you to keep your home, even if you’re behind on payments. You’ll work out a repayment plan (typically over 3 to 5 years) to catch up on past-due mortgage payments and keep the property.
Bonus Tip: If your home’s value has dropped and you have a second mortgage, Chapter 13 might allow you to “strip” that lien—eliminating the second mortgage entirely if certain conditions are met.
What Happens to My Car in Bankruptcy?
Cars are essential for work and daily life, and bankruptcy law recognizes that. Most filers are able to keep their vehicles under both Chapter 7 and Chapter 13—again, depending on exemptions and how much equity you have.
Chapter 7 and Your Vehicle
If your car’s equity is less than your allowed motor vehicle exemption, you’ll likely keep it. If the equity exceeds the exemption, the trustee might sell the car, pay you your exempt amount, and use the rest to pay creditors.
If you’re still making payments on your car loan, you may need to:
- Reaffirm the debt (agree to keep paying it)
- Redeem the vehicle (pay its current value in a lump sum)
- Or, if payments are unaffordable, surrender it and walk away from the debt
Chapter 13 and Your Vehicle
Chapter 13 offers more flexibility. You can:
- Catch up on missed car payments through your repayment plan
- Possibly reduce your car loan balance (if the loan is more than 910 days old) through a “cramdown” that adjusts the balance to the vehicle’s actual value
What Happens to My Business Assets?
Small business owners often worry that filing bankruptcy means shutting down their company—but that’s not always the case.
Chapter 7 and Business Assets
If you’re a sole proprietor, your business assets are considered personal assets. If they’re not exempt, the trustee may sell them. However, if your business is mostly service-based with few physical assets, the trustee may consider it not worth liquidating.
For incorporated businesses (LLCs, corporations), the business is a separate legal entity. Filing personal bankruptcy doesn’t necessarily affect the business directly, but if you’ve personally guaranteed debts, those are subject to discharge.
Chapter 13 and Business Owners
Chapter 13 is often a better option for business owners. You can keep your business running while reorganizing your debts. It can help protect essential business tools, vehicles, or equipment by allowing you to repay over time without losing those assets.
How to Protect Your Assets: Plan Ahead
If you’re worried about losing your property in bankruptcy, you’re not alone. The key is talking to a qualified bankruptcy attorney before you file. They can help:
- Analyze your assets and debts
- Explain your state’s exemption laws
- Choose the right bankruptcy chapter
- Maximize your asset protection
Final Thoughts
Filing for bankruptcy doesn’t mean losing everything you’ve worked for. In fact, it may be the best way to protect your home, car, and business assets from creditors, lawsuits, or foreclosure.
If you’re asking, “What will happen to my home, car, or business assets in bankruptcy?” — the answer depends on your financial situation, the chapter you file under, and how exemptions apply in your state.
Take the guesswork out of the process. Schedule a confidential bankruptcy consultation with the Bankruptcy Law Firm of Figeroux & Associates today to explore your options and protect what matters most. Call 855-768-8845 or visit www.askthelawyer.us to give yourself an opportunity for a fresh start!
