Chapter 7 is often known as liquidation bankruptcy because it requires the filer to sell some assets in order to satisfy some of the outstanding debt to creditors. Many people are intimidated by this liquidation aspect of Chapter 7, thinking it will leave them nearly penniless. That is a misconception.
In fact, many types of property are exempted from the liquidation requirement of Chapter 7 under federal and state laws. For many people, the homestead exemption is especially important. This allows people filing for Chapter 7 to keep $23,675 in equity in their homes.
Social Security retirement and disability benefits are completely exempt, as are some types of tax-exempt retirement accounts and life insurance policies. Certain types of education funds are also exempt.
Many other types of assets are exempt up to a certain limit. For example, a married couple filing for Chapter 7 can keep one motor vehicle for each of them, so long as the value of each vehicle is no more than $3,775. A filer can keep up to $12,625 in household goods and $1,600 in jewelry, and there are many other limited exemptions. There is even a so-called wild card exemption that can allow people to keep a certain amount of property that doesn't fit into the other exemption categories.
Filing for Chapter 7 bankruptcy protection is one of the fastest, most powerful ways to get out of debt. People who are struggling with debt should consult with an attorney who has experience in debt relief to learn more about find out if Chapter 7 is right for them.