Good Idea, Bad Idea - Cosigning a Loan

There are many good reasons why you may want to cosign a loan.  Some typical examples include helping a child obtain their college education by co-signing student loans, or assisting your spouse in purchasing a car. With any good idea, however, a small difference in the situation can make it a very bad idea.

Many people are unaware of the consequences of cosigning a loan, and in many many instances cosigning may be a very bad idea.  Take just the two examples described above:  If your child is unable to find a job after college and therefore unable to pay their student loan, that loan will be your responsibility.  If you and your spouse separate and he or she stops paying their car loan, your credit will be affected as well (even if they still have the car).

In these previous three posts we explored what happens when a cosigner or the primary borrower on a loan declares bankruptcy:

What happens to my Cosigner if I file for Bankruptcy?

I co-signed a loan and the primary borrower has filed for bankruptcy. What should I do to protect myself?

I am the primary borrower on a loan and my cosigner has filed for bankruptcy. What should I do to protect myself?

The short answer is simple: IF YOU SIGN A PROMISSORY NOTE, YOU HAVE A RESPONSIBILITY TO PAY THAT LOAN.  

By the numerous comments and questions we receive on all three of those posts it is obvious that many cosignors don't realize how serious this obligation is when they signed the loan.  Many people feel that it should matter that they don't have access to the collateral (such as a house or car) or that they don't have a relationship with the primary borrower anymore.  These are all the inherent risks in co-signing a loan and it doesn't matter to the lender.  If you cosigned a loan, you agreed to pay the money back if the other person doesn't, regardless of the circumstances.

If it isn't paid on time your credit will be affected.  If it isn't paid at all, the lender can sue you for the funds.  If the primary borrower files for bankruptcy and the debt is discharged so that they no longer owe it, you still do!

Cosigning a loan is not something that should be taken on lightly.  There are often good reasons to do it, but you should also consider all of the reasons why you might not want to.  In short, if you can't pay back the loan yourself, then you'd better be 100% positive that the primary borrower will pay it back.  If the lender was convinced of that, then the primary borrower wouldn't need a co-signor in the first place.

What to do when you receive a Notice of Bankruptcy? Step 4: What is your liability?

In our previous posts in this series you should have already identified why you received the Bankruptcy Notice and what the deadlines are that might apply to you.  In order to determine whether you should take any action related to this Notice, you now need to determine what you may have to lose.

If you are a creditor and you take no action, the debt owed to you may be discharged.  In most cases, there is nothing a creditor can do to prevent the discharge, especially in a no-asset case.  The right of the debtor to file for bankruptcy trumps your right to be paid by the debtor.  However, there are some examples where taking action can result in payment (or at least non-discharge of your debt).  Some examples where you may be able to prevent discharge of your debt, or all debts, is when the debtor committed fraud, when the debtor is trying to exempt property that should not be exempted, or when the debt is secured or otherwise protected from discharge (these are just some examples and is not intended to be an exhaustive list).

In any case where a creditor can prevent discharge, they are usually required to take some action to notify the court of their dispute and enforce their rights.  For example, in the case of fraud, the creditor must file an adversary proceeding challenging the discharge of that debt based on fraud.  In each individual case, you will have to determine if the value of preventing discharge of the debt is greater than the cost of enforcing that right.  In many such cases the creditor may reach settlement with the trustee regarding payment.

There are also situations where a bankruptcy may affect your liability, but there is nothing you can do about it.  For example, many codebtors will be affected by the bankruptcy of the debtor but have little rights to challenge the bankruptcy, because their liability is due to their own agreement with the creditor and they have no separately existing rights against the debtor.  This is often the case when one spouse, or ex-spouse files for bankruptcy.  Bankruptcy can have a major affect on debts owed by both spouses, and therefore property division, but if the divorce agreement doesn't appropriately address this possibility, the non-debtor spouse may have few or no options.  For more information about cosignors or the interplay of divorce and bankruptcy you may want to review these other posts:

I am the primary borrower on a loan and my cosigner has filed for bankruptcy. What should I do to protect myself?

I co-signed a loan and the primary borrower has filed for bankruptcy. What should I do to protect myself?

4 Facts Your Divorce Attorney Should know about Bankruptcy? Fact #4: Jurisdiction over Your Assets

4 Facts Your Divorce Attorney Should know about Bankruptcy? Fact #3: Jurisdiction over Your Debts

4 Facts Your Divorce Attorney Should know about Bankruptcy? Fact #2: Domestic Support Obligations

4 Facts Your Divorce Attorney Should know about Bankruptcy? Fact #1: The Automatic Stay

Once you've identified your exposure in a bankruptcy, the last step is to determine if you need help in limiting that exposure.  Should you hire a bankruptcy attorney to help you evaluate your claims? 

What to do when you receive a Notice of Bankruptcy? Step 3: Identify Deadlines.

If you receive a Notice of Bankruptcy, it will contain certain deadlines and meeting dates.  The sample below shows where some of those deadlines will appear:

These dates are important because they limit what you can and cannot do in a case, and if you miss any of these deadlines you may have given up your rights to make certain objections or claims.  You should read the Notice carefully to make sure you understand all of the information contained therein.  To highlight some of these limits we have indicated them with red arrows in the sample Notice above.

Some of the important dates and limitations that appear on the Notice are as follows, in descending order as they appear on the Notice:

The date of filing:  This is the date that the debtors case was filed with the court and some of the other dates will depend on this date.

The meeting of creditors:  This is the date that the Section 341 Meeting of Creditors is first scheduled to take place.  The Creditor's Meeting is scheduled about 30 to 45 days after the bankruptcy petition is filed. At least seven days before this meeting, the debtor is required to provide to the trustee and any creditor requesting it a copy of their most recently filed tax returns and proof of income for the most recent 90-day period. The court-appointed Chapter 7 trustee will preside over this meeting. At the meeting, which the debtor is required to attend, the debtor will be asked to testify under oath as to the accuracy of the statements in the petition. Creditors have a right to attend this meeting and ask questions, though they are not required to.

Deadline to object to discharge or to challenge the dischargeability of certain debts:  
A creditor may object to the discharge of amounts owed to them by the debtor under certain circumstances. If a creditor objects to the discharge of any of the debts listed in the petition or schedules, such objection must be raised within 60 days after the first scheduled §341(a) Meeting of Creditors.  If you do not raise such an objection in a timely manner you risk waiving that right and having any such debt discharged.

Deadline to object to exemptions:  Certain property claimed by the debtor to be exempt (not reachable by creditors), may be claimed as exempt in error.  If that is the case, then that property might be used to pay creditors.  Once the §341(a) Meeting is concluded, creditors only have 30 days to object to these exemptions after which the trustee may (and likely will) release all of this exempted property back to the debtor.

Deadline for financial management course:  The debtor must take a financial management course within 60 days after the first scheduled §341(a) Meeting of Creditors, and if they don't they might not receive their discharge.

Automatic Stay: Immediately upon the filing date, an automatic stay prevents creditors from taking certain actions against the debtor.  If you violate the automatic stay you may be subject to sanctions and fines by the bankruptcy court.  You should ensure that you do not take any action against the debtor after the filing date without consulting with a bankruptcy attorney to ensure that you are not violating the automatic stay.

There may be other deadlines in cases that are different from the Chapter 7 no asset case in our example.  For example, in a case with assets there will also be a deadline for filing a Proof of Claim.    To ensure that you know all of the deadlines and meeting dates read your Notice carefully.

Once you understand what your deadlines are, the next step is to identify: What is your exposure to liability if the debtor receives their discharge?

What to do when you receive a Notice of Bankruptcy? Step 2: Are you a creditor?

If you receive a Notice of Bankruptcy you need to determine why you received the Notice. You might be a creditor, an interested party, or a codebtor.  Creditors are not the only ones who receive a bankruptcy notice, and even if you're not a creditor you may have an interest in what happens in this bankruptcy case.

The Notice will not tell you why you received it.  A sample notice, shown below, doesn't have your name anywhere on it.  It does, however, have the name of the debtor and the case number.  These two pieces of information should help you determine whether you are a creditor or some other interested party.

The Debtor, whose name is listed on our sample notice above as Sample Debtor, is the person who has asked the bankruptcy court for relief with their debts.  If you are aware of a debt that the debtor owes you then you are a creditor and you should review the other information within that Notice.  As a creditor you have certain rights that may include filing a Proof of Claim and attending the Meeting of Creditors.

If you're not sure if the debtor owes you money, then you might be a creditor or you might be something else, such as a contingent creditor, a co-debtor, or simply an interested party.  To determine why you received this Notice, you must look at the schedules.  The Bankruptcy court documents are public record and may be reviewed at the court or online if you have a Pacer access account.  If you need help accessing these files any bankruptcy attorney will have an online account access and be able to look up the case file online.

Once you have access to the file, you will want to review the Bankruptcy Petition and Schedules to figure out where your name appears.  If you are a creditor then your debt should be listed in one of the Schedules of Creditors.

If you are not a creditor you may still have an interest in the bankruptcy proceedings for some other reason.  For example a codebtor (someone who is also responsible for a debt that the debtor owes) could be left being wholly responsible for a debt if the debtor is discharged of that debt.  You might be a codebtor if you cosigned for a loan for the debtor, or if they cosigned for a loan that you took out, or if you borrowed money together for any reason (such as co-owners of a house with a mortgage).  Codebtors are listed on the Schedule of Codebtors.

If you are not a codebtor or a creditor then your name may still appear somewhere else in the schedules, identifying why you received the Notice.  For example, you may receive a Notice of Bankruptcy if you have a lease or other contract with the debtor, even if they are not behind on their payments.  Reading all of the schedules carefully should help you discover why you received the notice, whether you are a creditor, codebtor or some other interested party.

Once you identify why you received the Notice, you can begin to evaluate what type of action you should take.  For example the Notice tells creditors what many of their rights and obligations may be.  The next step, therefore, is to identify: What are the important dates and deadlines I should keep in mind?

My creditor has placed a lien on my house. Will the lien be discharged in bankruptcy?

When a debtor files for bankruptcy and receives a discharge, the Order Discharging Debtor will absolve the debtor of all dischargeable debts, and bar creditors from collecting those debts from the debtor in the future.

However, certain creditors can file a lien against property (usually real property) to ensure that their loan is paid. If your creditors have recorded liens against your property, the discharge order will not automatically discharge those liens. In certain cases, it is possible to avoid the lien (i.e., strip off the lien), but your bankruptcy attorney must file a motion to do so. Certain liens are not avoidable, such as liens given with your consent and tax liens) and will remain on the property. The most common example of an unavoidable lien is your typical mortgage.

Most people are familiar with the legal relationship between a borrower and a lender in the context of a mortgage – a bank lends money to someone wishing to purchase a home, and in exchange for the loan and the borrower’s promise to repay the debt, the lender places a lien against the property granting them certain rights, including the right to foreclose if the debtor does not honor the terms of the borrower’s obligation to repay. This arrangement protects the lender by giving them legal recourse against the collateral, so that they can recoup all or a portion of their loan if the borrower fails to pay.

A lien arising out of a mortgage is not avoidable because it is “voluntary”. Here, the borrower allowed the lender to place a lien on his or her property (or pledged some other collateral) in exchange for something of value, such as a loan. Voluntary liens are not avoidable in bankruptcy pursuant to the U.S. Bankruptcy Code. Although the borrower can never pursue the discharged debtor for any deficiency, in order to pass clear title to the property upon sale, the lien must either be paid by the new buyer or discharged (i.e., forgiven) by the lender.

In addition, liens placed against property by government institutions for taxes are not avoidable in bankruptcy.

In certain cases, however, a creditor may have obtained a lien against your property against your will. The most common is a judicial lien, in which a creditor has taken you to Court for an unpaid debt, obtained a judgment in their favor, and requested a sheriff to “execute” that judgment against your property. A copy of the judgment would be recorded in the registry of deeds in your county against your property. As before, even if the underlying debt is discharged in bankruptcy, the lien obtained by the creditor remains in place. The debt does not have to be repaid by virtue of the discharge, but the lien will continue to cloud the title to the property, making a future sale difficult or impossible if the lien is not paid at closing.

11 U.S.C. § 522(f) permits a debtor to remove liens based on a legal judgment of a nonpriority creditor – to the extent the lien encumbers the value of the debtor’s exemption(s) in the property. Put another way, if the value of the debtor’s equity in the property would be exempt even without the encumbering lien, a court, on motion of the debtor, may avoid the lien, effectively stripping it from the title history of the property.

The procedure for avoiding a judicial lien varies from state to state, and must be made by motion to the court. If any of your creditors have obtained a legal judgment against you, and recorded that judgment as a lien against your property, simply filing for bankruptcy isn’t enough. Ensure that your bankruptcy attorney is aware of the existence of the lien, and they will be able to advise you as to whether it can be avoided, and if so, file the appropriate motion with the Court.

I am the primary borrower on a loan and my cosigner has filed for bankruptcy. What should I do to protect myself?

A co-signer is an individual who is promising to repay a loan in the event the primary borrower defaults. In many cases, having a co-signer on a loan may have been necessary to obtain the loan because the primary borrower’s credit rating was insufficient to qualify on their own, and the co-signer stepped in to assist the primary borrower to obtain financing.

As we discussed in our previous post, if the primary borrower defaults (or files bankruptcy), the co-signer will be required to pay the loan back. But what about the reverse situation?

How is the primary borrower affected if the cosigner files for bankruptcy?

Consider the same example: Adam wants to buy a car, but can only qualify for a loan with a co-signer. Betsy agrees to co-sign, but her name is not listed on the title as an owner of the vehicle. This time Betsy files for bankruptcy and obtains a discharge of the car loan. For the sake of simplicity, we will assume that Betsy has no ownership in the vehicle that may be attributed to her by the Trustee.

Adam is still legally obligated to repay the unpaid balance of the loan. However, when Adam pays off the loan, all liens will be released, and the title will be issued in Adam’s name. Most auto financing agreements make no distinction between the “borrower” and “co-borrower” aside from whose name the title will ultimately be issued to. As such, the bankruptcy of a co-borrower is similarly a breach of the terms of the loan, and could result in a default under the terms of the note. As before, the bankruptcy (and discharge) of the co-borrower’s obligation leaves the lender in a position where they can only pursue one individual, not two, in the event the loan is not paid.

This material departure from the original agreed upon terms could be considered a default, and in fact, many auto financing agreements specifically include such a term. However, it has been my experience that the lender will receive a greater financial return by accepting the primary borrower’s monthly payments than they would by repossessing the vehicle and selling it at auction, meaning that the primary borrower will likely keep the vehicle, despite the co-borrower’s bankruptcy.

In the event a co-borrower files for bankruptcy, the best thing that the primary borrower can do is seek to refinance the balance on the car loan, if possible. Many credit unions and some larger banks offer automobile refinancing loans. By refinancing the loan, the primary borrower has effectively paid off the loan securing the vehicle, and negated any circumstances which could trigger a default. If handled properly, and for a qualified borrower, it is often possible to keep payments the same, or even lower payments upon refinancing the car.

A borrower may be tempted to sign a reaffirmation agreement presented by the lender. However, executing the reaffirmation agreement is, in my opinion, not a legal guarantee that the bank will take no further action, nor will it cure any default under the terms of the note upon the co-borrower’s filing for bankruptcy. First, in order to cure the issue of default, at a minimum, the co-borrower filing for bankruptcy would have to sign. A reaffirmation agreement is an agreement arising in the context of a bankruptcy case. Here, the primary borrower is not seeking bankruptcy protection, nor is he electing to “remove” the debt from the discharge order; and therefore the primary borrower, Adam in our example above, has no standing to sign the reaffirmation agreement.

The bankruptcy of a co-borrower should not appear on Adam’s credit report, but because some lenders will automate their reports to credit agencies, there is a reasonable likelihood that the entry may make some indication of bankruptcy. If this happens, the information in the credit report is incorrect. It may be necessary to contact the three credit bureaus (Equifax, Experian, and Trans Union) as well as the lending institution to ensure that this information is correctly reported on the primary borrower’s credit report. Again, refinancing with a new loan is the simplest way to resolve this issue because then the loan will be listed as paid, and the new loan will report positively on a credit report (as long as you continue to pay it on time).

As with the decision to co-sign a loan, the decision to obtain a loan requiring a co-signer comes with significant legal consequences if the co-signer does not honor the terms of the note. Consider the need to take out a loan with a co-signer carefully, and if the co-signer files for bankruptcy , it may be worth your while to reach out to a bankruptcy attorney to better understand your options and obligations regarding the loan.

FAQ #26: If I am not married, but living with my partner and he pays most of the bills, will that affect filing?

Having other people in your household will not implicate your cohabitant(s), inasmuch as the bankruptcy will not affect their credit or discharge any of their debts. However, the means test (for Chapter 7 eligibility or Chapter 13 plan commitment purposes) looks at the debtor’s “total household income” when considering the income available to the debtor. Therefore, it may be necessary to disclose to the court your cohabitant’s income. Some trustees will accept the argument that, in cases where the cohabitants maintain sufficiently separate finances, the debtor’s total income is not available to the debtor. However, the debtor would need to disclose, as income, the portion of income made available for the debtor’s benefit, including any amount the cohabitant pays toward the debtor’s monthly expenses.

What happens at the end of successful Individual Chapter 7 Bankruptcy?

When an individual files for Chapter 7 Bankruptcy, the debtor is essentially asking the bankruptcy trustee to manage the liquidation of any collectible assets and then requesting that the court discharge the remaining dischargeable debt.

The trustee will take any assets of value, which are not exempt, and distribute those assets to the creditors in order of priority. For more information about what types of assets are exempt visit our Exemptions page.

Any unsecured creditors that are left holding claims when the assets run out will be discharged unless they fall into a very limited list of non-dischargeable debts (such as student loans or most income tax debt).

If no objections are filed, then the debtor is issued a discharge, which is an order that prohibits discharged creditors from trying to collect their debts from the debtor. This is the typical end of a Chapter 7 Bankruptcy case, although there are certain objections or audits that can be filed later which could re-open or undo the discharge.

What happens at the end of successful Corporate Chapter 7 Bankruptcy?

When a corporate entity files for Chapter 7 Bankruptcy (liquidation), the business is essentially asking the bankruptcy trustee to manage the liquidation of corporate assets. The trustee will take any assets of value and distribute those assets to the creditors in order of priority.

A corporate entity does not receive a discharge of debts at the the end of the bankruptcy. Any assets which were not distributed by the trustee are abandoned back to the business which must now be dissolved by the owners. The owners may be subject to collection on debts of the company if they personally guaranteed any of those debts or failed to appropriately separate their personal and corporate assets. However, any strictly corporate debts not satisfied in the bankruptcy are owed solely by the corporate entity and any property abandoned back to the business could still be collected pursuant to state collection laws.

Practically speaking, any assets abandoned back to the business are probably so invaluable as to not be worth collecting. Once any remaining corporate debts are paid, the business can be dissolved and any remaining assets distributed to the owners.

What happens to my Cosigner if I file for Bankruptcy?

Update:  Because of the extensive interest in this topic, we have written two follow-up posts which more specifically address these issues from the standpoint of either the primary borrower (i.e. the person who is gaining the advantage from the loan, whether it be an education, car, home, etc.) or the co-signer (i.e. the person who signed the loan usually just to assist the other person in qualifying):


I co-signed a loan and the primary borrower has filed for bankruptcy. What should I do to protect myself?

I am the primary borrower on a loan and my cosigner has filed for bankruptcy. What should I do to protect myself?

Original Post:

When you file for bankruptcy you are required to disclose if any of your debts have co-debtors. A co-debtor is someone who also agreed to pay that debt, which includes co-borrowers, co-signers, and guarantors. Even if the debtor is discharged of their obligation for a debt, the co-debtor still owes the debt.

In many cases, the filing of bankruptcy of one of the borrowers will constitute a default on the loan and the creditor can then accelerate the loan against the co-debtors if the debtor does not reaffirm. Accelerating the loan means that the lender requests full payment or in the case of a mortgage, forecloses. Despite this ability, in most cases lenders will not accelerate a loan, but will allow it to remain under the current terms if the co-debtor continues to make timely payments.

If the creditor has already sued both the debtor and a co-debtor that collection action can usually continue against the co-debtor, except in the case of a Chapter 13 which specifically protects co-debtors from collection actions during the pending bankruptcy.

If you are a co-debtor on a loan and the borrower is filing for bankruptcy, you should consult with an attorney about what your rights and obligations may be. It is important that you at least find out whether or not the debtor intends to reaffirm their obligation to the creditor or whether you will be left owing the full amount yourself.

One thing Facebook is not good for: Collecting Debts!

Facebook, Twitter and social networks have grown well beyond their initial intentions. Like many online tools, businesses have found ways to use these networks to their advantage, whether through traditional straightforward advertising, or guerrilla marketing strategies. In some ways the possibilities are endless. But, a debt collection agency in Florida recently discovered one of the limitations on using these networks.

According to a recent article on The Washington Post online, a Florida judge ordered Mark One Financial LLC of Jacksonville, Fla., a debt collection agency, to not use Facebook or any other social media site in an attempt to locate a woman over a $362 unpaid car loan. The Judge also prohibited the company from contacting the woman's Facebook friends.

The Judge felt, and I can understand why, that contacting the debtor on a public forum such as Facebook was a violation of the debtor's privacy. But just because they can't contact you, doesn't mean debt collectors aren't still using social networks and online resources to find out information about you. Remember that anything you post online is now out there and available for your creditors to find.

For more information about Massachusetts law relating to Debt Collection and fair practices visit the Massachusetts Trial Court Law Libraries page here.

I am the Trustee of a Trust. Can the Bankruptcy Trustee Take the Trust Assets?

If a debtor is a trustee of a trust, 11 U.S.C. § 541(a) provides that the bankruptcy estate includes the trustee’s powers granted under the trust instrument. The bankruptcy trustee has the power to step into the trustee’s shoes and exercise the trustee’s powers with respect to the trust, but this does not mean that the assets of the trust automatically become assets of the bankruptcy estate; rather, the assets in the trust remain separate from the bankruptcy estate.

However, depending on the terms of the trust, the trustee may have the power to revoke or terminate a trust, the power to amend the trust, or the power to direct distributions of funds of the trust. Therefore, these powers could allow the bankruptcy trustee (acting in place of the original trustee) to obtain access to the trust assets, particularly if the trust assets could be made available to the debtor. Additionally, when the trustee and beneficiary are the same person (and are the debtor in a bankruptcy case), the legal protections of the trust are “merged” into the sole trustee and beneficiary, making the debtor the sole beneficial "owner" for purposes of the bankruptcy code.

I am the Beneficiary of a Trust. Can the Bankruptcy Trustee Take the Trust Assets?

A beneficiary’s interest in a trust may be property of the bankruptcy estate. However, any trust containing spendthrift provisions that make the beneficiary’s interest in the trust non-transferable are protected from the beneficiary’s creditors. 11 U.S.C. 541(c) honors state spendthrift clauses. Therefore, if the trust is properly created under Massachusetts law pertaining to trusts, the bankruptcy code will honor the settelor’s intentions and keep the debtor-beneficiary’s interest in the trust from becoming property of the bankruptcy estate.

Trust beneficiaries should be careful, however. If the settler and beneficiaries are the same, the trust is self-settled, rendering spendthrift provisions unenforceable. Further, if the doctrine of merger applies (described above), the trust will cease to exist and negates the spendthrift protection.

Where's MY Bailout?!

With the economic turmoil that has well entrenched itself in the United States now starting to develop in Europe, and economic experts on both sides of the Atlantic saying something ranging from "we're not out of the woods yet" to "the worst is yet to come", it seems that we all have continued interest (and perhaps suspicion) regarding the concept of the "government bailout".

We all learned that the U.S. Government would be spending billions of dollars bailing out General Motors, Citigroup, Bear Stearns, Bank of America and AIG, and now, there are discussions of the European Union bailing out the entire government of Greece. With the billions (trillions?) of dollars at stake in these government sponsored bailouts, many people have asked, often rhetorically:

"I am overwhelmed with credit card debt; I've been out of work for months; these unexpected medical bills are piling up - I don't know what do do. Now, I'm so far behind, I can't even afford the minimum payments, and I fell behind on my mortgage - I might loose my house. Where's MY bailout?"

Surprisingly, there is a program that, if you qualify, will permit an individual, a business, or a family to seek relief of certain debts, such as credit cards, medical bills, even certain types of civil judgments so that they may be paid off for pennies on the dollar, or, often, discharged entirely. Even more surprisingly, this is not a new program: it is the Bankruptcy laws of the United States.

But wait...BANKRUPTCY? That's not a bailout. It hurts my credit!

That is true. All actions have consequences, and the government bailouts we see in corporations have their own consequences. The public trust in these businesses may be shaken, profits may be hurt, and their corporate credit will suffer. I will not attempt to equate personal bankruptcy with the Emergency Economic Stabilization Act of 2008; my comparison is only an analogy, but I will maintain that if you are in a untenable financial situation, you do have options to protect your self, your assets, and your family. For more information regarding your own personal "bailout", contact Kelsey & Trask, P.C. for an initial bankruptcy consultation. We would be happy to meet with you to discuss your situation and address the benefits and risks of bankruptcy, as well as alternatives to bankruptcy, such as debt settlement.

What will I keep if I file for a Chapter 7 Bankruptcy?

When filing for Bankruptcy certain property of the debtor is exempt from the Bankruptcy estate, which means that it is not subject to being taken by the Trustee and used to pay your debts.

When filing a Bankruptcy as a resident of Massachusetts a debtor can choose to use the exemptions allowed under either State or Federal law, but you must choose one or the other. There are many exemptions that are similar under both schemes, such as the exemption of most qualified retirement plans. A table of the maximum exemptions as of April 14, 2009 in categories where the state and federal exemptions differ significantly can be found here. Please note that these figures are subject to change and you should consult with an attorney to obtain the most current figures and to decide which option you should choose.

UPDATE: The Massachusetts Exemptions have recently changed. For more information read our post on the changes: New Massachusetts Property Exemptions: The Return of 2 Cows, 12 Sheep and 2 Swine.