What happens to nonexempt property in Chapter 13?

How to keep your property and still file bankruptcy.

As you have learned about Chapter 7, the trustee will ask for all of your non-exempt property so he or she can sell it and give the proceeds to your creditors. This is called liquidation. We don’t want this to happen. Therefore, it is very important that you work closely with your attorney before you file, to protect all of your property.

In a Chapter 13, if you have non-exempt property you wish to keep, you must pay the value of that property to your creditors in your plan payment. This will account for a part of the total plan payment.

Example

Let’s say you have a camper trailer you want to keep. In very rare cases will a camper be considered exempt property. You and your family use it quite regularly and you know you wouldn’t be able to find another like it for less than $10,000 full retail.

You’re filing Chapter 13 for various reasons, perhaps you’re stopping a foreclosure and paying your mortgage arrears in the plan or your are stripping a second mortgage from your home. In either case, you may find it is worth keeping the camper. Although retail cost for a new trailer may be $10,000, the book value at a dealer auction will likely be about $5,000. This is the liquidation value. In other words, you are required to return to your creditors what they would have received in a Chapter 7 liquidation. This is called a liquidation analysis.

If the Chapter 13 trustee agrees to the $5,000 value, then your monthly payment will go up so that $5,000 is paid into the plan over its full term. Depending on the length of the plan, the amount will be added to the other costs that go into a total plan payment.

If you are in a 36 month, or 3 year, plan, then your payment would go up by $139 per month. If you are in a 60 month, or 5 year, plan, then the payment would go up by $84. But you get to keep the camper.

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