Chapter 13

• Chapter13 bankruptcy does not involve selling property or liquidating assets. Chapter 13 bankruptcy involves putting together a debt adjustment and repayment plan. If the bankruptcy judge approves your proposed plan then you will make monthly payments to the bankruptcy court for three or five years according to your plan. None of your assets are at risk. You can keep all of your money and all of your property when you file for Chapter 13 bankruptcy.
  
  

Liquidation

• Your assets may be at risk, however, under a Chapter 7 bankruptcy because Chapter 7 involves liquidation. When you file for Chapter 7 bankruptcy, a trustee will be assigned to your case. The trustee's job is to try to collect as much money as possible for use in paying off as many of your debts as possible. The trustee accomplishes this by liquidating your assets, which means selling your property to raise money. The trustee can generally sell any of your property that is not protected by a specific statutory exemption.
  
  

Federal Exemptions

• U.S. federal law provides a set of exemptions that can potentially actually apply to a Chapter 7 bankruptcy filed in any state. State law, however, determines what exemptions actually apply. Most state laws allow the debtor to choose either the state exemption system or the federal exemption system. The debtor cannot mix and match exemptions between the two, but may choose one complete set. Some state laws don't allow the debtor to elect the federal exemption system, which means they are stuck with the state exemptions. In California, for example, state law allows the debtor to choose between two different state law exemption sets, but there is no option to use the federal exemption set.
  
  

State Exemptions

• The details vary from one state to another, and from the federal exemption list to state exemption lists, but generally exempt property includes a home, at least one car, household furnishings, some personal property, retirement accounts, some work tools and equipment and a small amount of cash. The amount of each exemption varies widely among all the states. For example, a home is only protected for up to $5,000 of equity in Alabama, but in Florida the homestead exemption is unlimited which means your house is safe no matter how much it is worth or how much equity you have in the home.
  
  

Non-Exempt Property

• The trustee will sell any of your non-exempt property as part of the liquidation process. If you have too much equity in a certain piece of property, the trustee will sell that property and give you cash equal to the exemption amount. For example, if you have $20,000 of home equity and you live in Alabama, then the trustee will sell your home and give you $5,000 cash to cover your $5,000 homestead exemption.