What Happens to Things I Own If I File for Bankruptcy?
This article is part of a comprehensive guide to bankruptcy in Oregon. Go here to read the guide and see related articles.
Filing for bankruptcy can be stressful, especially if you're worried about losing your home, car, or other important belongings. But bankruptcy doesn't mean losing everything. Many essential items are protected. If you own a house or car, in some cases, you may be able to keep it while you get back on track.
This article covers how bankruptcy affects your property, what you can keep, and what to consider before filing.
How bankruptcy affects property
When you go through bankruptcy, the things you own are divided into two categories: the things that are protected and you can keep, and the things that might be taken or sold to pay off your debts.
The things that you can keep are called exempt property and may include:
- Clothing and personal items
- Furniture and household appliances
- Some home equity (equity is the value of your home after subtracting what you owe on your mortgage)
- One car, up to a certain value
- Work tools and equipment needed for your job
- Retirement accounts like a 401(k) or IRA
The things that could be sold are called nonexempt property and may include:
- A car or home worth more than the protected limit
- Extra cars or second homes
- Valuable jewelry, artwork, or collectibles
- Stocks, bonds, and other investments
- High-value items purchased around the time you file
There is also a special type of protection called a wildcard exemption. The wildcard exemption lets you protect some things not fully covered by other rules, like money in the bank, valuable or special items, or, in some cases, a vehicle that's worth more than the protected limit.
The two sets of rules that decide what you keep:
There are two sets of rules for what is and is not protected in bankruptcy: the federal rules and the Oregon rules.
- Each set of rules protects property differently.
- The rules also give you a different amount of wildcard protection.
You may have a choice between Oregon and federal rules.
- If you have lived in Oregon for at least two years, you may be able to choose either Oregon's rules or the federal rules for what property you can keep—but not both. You cannot combine protections from the two sets of rules.
- Go here to see a chart comparing the protections under the federal rules and Oregon rules.
What happens to my property that is not protected?
What happens to possessions or property that isn't protected will depend on the type of bankruptcy you file.
- In Chapter 7: The person overseeing your case, called the bankruptcy trustee, may sell your unprotected property to pay off your debts. In some cases, however, you may be able to keep or buy back certain items.
- In Chapter 13: You usually get to keep all your property, even if some is not protected. However, your payment plan may require you to pay your creditors (the people or businesses you owe) an amount that is equal to the value of that unprotected or nonexempt property.
Can I keep my car?
It depends on how much your car is worth, whether you still owe money on it, and if it is covered under the property rules (the federal or Oregon exemption rules) that apply in your case.
In Chapter 7:
- If your car is paid off and its value is under the protected limit, you can usually keep it.
- If you're still making payments, you can keep the car if your equity is under the limit and you keep paying the loan.
- Your equity is what the car is worth minus what you still owe on your loan.
In Chapter 13:
- You can keep your car if you pay back any missed payments as part of your repayment plan.
Can I keep my house?
Whether you can keep a house you own depends on how much equity you have and whether you can continue making your mortgage payments. Your equity is the home's value minus what you still owe.
In Chapter 7:
- You can keep your home if your equity is under the protected limit and you continue making mortgage payments.
- If your home equity is more than the limit, the trustee may sell it to pay creditors and give you an amount equal to the protected limit.
In Chapter 13:
- You can keep your house if you pay any missed mortgage payments as part of your repayment plan.
- This type of bankruptcy may help you catch up on late payments and avoid foreclosure.
Want more details on home and car limits? Scroll down to the FAQs below.
What if I sell or give away property before I file for bankruptcy?
Be careful about selling, giving away, or moving money or belongings before you file for bankruptcy. The bankruptcy trustee (the person managing your bankruptcy case) will review the transactions to make sure they were fair.
The court may take back something you sold, gave away, or paid out if it looks like you were trying to prevent creditors from getting it. This could be a problem if you did any of these before filing:
- Gave or gifted money or property, or sold property to anyone for much less than it was worth.
- Paid off one creditor before others (like a credit card or loan).
- Paid back a friend or family member before others.
How far back can the trustee look?
- Between 2 and 4 years if they believe you gave something away or sold it for less than its worth to avoid paying creditors.
- Up to 1 year if they believe you paid off a debt to a friend or family before other creditors. Payments or gifts to people close to you usually get more attention.
- Up to 90 days if they believe you paid a creditor before others. This applies when one creditor gets more than their fair share.
If you're not sure whether a recent sale, gift, or payment could be a problem, consider talking to a lawyer before you file.
Other Frequently Asked Questions
If you use the federal rules:
- Home: Up to $31,575 of equity, or $63,150 for couples.
- Car: Up to $5,025 of equity per person.
If you use Oregon's rules and:
- You filed before January 1, 2025:
- Home: Up to $40,000 of equity is protected if you file alone or $50,000 if you file with someone else.
- Car: Up to $3,000 of equity in one vehicle is protected per person.
- On or after January 1, 2025:
- Home: Up to $150,000 of equity is protected if you file alone or $300,000 if you file with someone else.
- Car: Up to $10,000 of equity in a vehicle is protected per person.
Equity means what your home or car is worth, minus what you still owe on it.
Oregon's rules:
- Protect more equity in your home. Equity is the value of your home minus what you owe on it.
- Protect more value in a car: either by letting you keep a more valuable car, or keeping more of the money if it's sold.
- Allow you to keep more (or more valuable) tools that you need for work.
- Protect specific items, such as:
- Rental security deposits
- Pets and livestock
- Firearms
- Books and music
- Allow a small wildcard protection:
- Protect up to $400 of anything not already protected under another category, like money in the bank or household items.
- But this wildcard can't be used on property that already has its own protected category (exemption).
Federal rules protect:
- Less equity in your home and car.
- A much more flexible wildcard exemption:
- Protect up to $1,675 in property of your choice.
- You can increase this by up to $15,800 more (for a total of $17,475) if you don't use all the homestead exemption, which is the protection for a house or your equity in your house.
- You can use the wildcard to protect things not covered by other categories or you can combine the federal wildcard with another category to add extra protection to something like your car or bank account.
Both Oregon and federal bankruptcy rules include a flexible protection called a wildcard exemption. This lets you protect property that isn't fully covered by other rules.
The federal wildcard is more generous. It allows you to protect almost any type of property and can be added to other exemptions (protected categories) to increase your total protection. The dollar limit is also higher than Oregon's.
Oregon's wildcard exemption is smaller and more limited. You can only use it to protect money or property that isn't already covered by another exemption.
Example of how the wildcard can work:
You file for Chapter 7 bankruptcy as an individual. You don't own a home, but you do own a car worth $20,000.
If you choose Oregon rules:
- The car exemption protects up to $10,000.
- The wildcard protects $400, but you can't use it on the car because the car already has an exemption.
- The car is worth more than the protected limit, so the bankruptcy trustee can sell it.
- You'll get $10,000 back, but lose the car.
If you choose federal rules:
- The car exemption protects up to $5,025.
- You don't need to use the homestead exemption, so your wildcard increases to $17,475.
- You can combine the two to protect $22,500 worth of property.
- Because your car is worth $20,000, and the total protection is $22,500, you get to keep the car.
Wages (money you receive in your paycheck for work):
- In Chapter 7, wages earned after filing are yours to keep.
- In Chapter 13, part of your income (including wages) goes toward your repayment plan.
Tax refunds:
- In Chapter 7, part of your refund may be taken to pay creditors, especially if it's from before you filed. For the year you file, usually only the portion you earned before filing is at risk. Some parts of your refund, like the Earned Income Tax Credit (EITC) or money covered by an exemption, are usually protected.
- In Chapter 13, tax refunds may be included in the repayment plan.
Inheritances:
- In both Chapters 7 and 13, if someone leaves you an inheritance within about six months after you file, it may still be taken to pay creditors, even if your case is already closed.