I will lose everything. Wrong.  I believe that people think they’ll lose their home, car, cash - everything - in a bankruptcy simply because they are required by the law to list all their assets on their bankruptcy paperwork.  This assumption, however, is wrong. 

The reality is that most of the items that Chapter 7 filers have (household goods, clothes, furniture, small amounts of cash) are “exempt,” a fancy word meaning the item is protected, up to a specific value, from being seized by the bankruptcy Trustee. These exemptions exist because the government doesn’t want to have to support you, so they don’t want to take everything you have away.* 

In California, under one list of exemptions (there are two; check with your attorney to find out which list is best for you), there’s a wonderful little exemption called the “wildcard.”  The wildcard allows you to protect close to $22,000 of equity in your home.  If you don’t have equity (and in this market very few people do) or have only a little, then you can use the unused portion towards ANY item you have.  So say you have a car (paid off) worth $13,000.  You can tap into the wildcard pot to protect that vehicle. Same with cash, stocks or any asset AS LONG as you stay at or below that wildcard limit.  There are many other exemptions besides the wildcard as well that will protect things like jewelry (up to a certain amount), business tools, retirement accounts, and household goods and clothing.

Most Chapter 7 filers don’t have much beyond a paid off vehicle that’s a few years old (not much of an asset there), maybe a few hundred in the bank, maybe a timeshare they can’t even sell (they’ve tried) - and as such, their assets are completely exempt.   This makes you what’s called a “no-asset” case. If you don’t have assets, then the Trustee is not going to take much interest in your case.

Due to the many exemptions, including the wildcard, the typical Chapter 7 bankruptcy case is a no-asset case.  And so, contrary to the rumors, you’ll most likely be able to keep what you have.

* Being the government, it will take away that which is not “exempt.”  If you have $40,000 in stocks, for example, not all of it will be protected.  But then, if you have that much stashed away, then maybe a Chapter 7 may not be right for you.  As always, talk with an attorney to get advice on the specifics of your case.