Ask Dr. Don By Don Taylor, Ph.D., CFA • Bankrate.com

Listing debts in bankruptcy

Dear Dr. Don,
If I file for bankruptcy, do I file on my cars, house and credit card? I want to be able to keep my car and home.
Thanks,
Sylvia Somber

Dear Sylvia,
When you file for bankruptcy, you're required to list all of your debts. You don't get to pick and choose which ones you want the court to consider.

You'll typically choose between filing a Chapter 7 bankruptcy petition and a Chapter 13 bankruptcy petition. A Chapter 7 filing is a liquidating bankruptcy where the court establishes a bankruptcy estate from your nonexempt assets and uses the proceeds from that estate to pay your creditors. The bankruptcy court discharges all eligible debts leaving you free of any further obligation of paying those discharged debts. Exempt assets vary by state. This site lists the exemptions by state but shouldn't be relied upon as the final word.

In contrast, a Chapter 13 bankruptcy filing establishes a plan for you to repay your debts over the next three to five years. After successfully completing the repayment plan, the bankruptcy court will discharge the remaining eligible debts.

A Chapter 13 bankruptcy filing can stop, at least temporarily, a mortgage lender from foreclosing on your home. If you're current on your mortgage payments, you should be able to hold on to your home through a Chapter 13 bankruptcy filing.

You're also more likely to be able to keep your car in a Chapter 13 bankruptcy than in a Chapter 7 bankruptcy.

None of what I've written should be substituted for legal advice from a bankruptcy attorney. An attorney will be able to advise you on the bankruptcy laws in your state and which chapter of the bankruptcy code is right in your situation. The U.S. Courts' Web site offers Bankruptcy Basics, which will give you a solid overview of what takes place when you file for bankruptcy.

-- Posted: July 31, 2003