Bankruptcy Code Allows You To Retain Assets, But You Have To Ask

Every state exempts specified assets from creditors' Bankruptcy claims. The Bankruptcy Code even incorporates these exemptions in 11 U.S.C. § 522.

However, exemptions are not automatic. To benefit from exemptions, the debtor must claim them. If a debtor does not claim an exemption, then their property remains in the Bankruptcy estate and can be used by a Bankruptcy trustee to pay creditors. But if you properly exempt your qualified asset it will reinvest in you and ceases to be estate property.

Why is the court being so generous allowing debtors to keep some assets even though they owe creditors? The same reason the bankruptcy system exists in the first place: to give debtor's a fresh start. The court knows it will be difficult to start anew with nothing, so it allows debtors to retain some essential assets, such as a home and car in most situations.

To take advantage of this exemption, the consumer must claim it. If the consumer does nothing, then the full value of the asset enters the bankruptcy estate, and it might be used to pay creditors.