What Property Can I Keep if I File Chapter 7 in Virginia?

One of the biggest fears about bankruptcy is losing your things and property, but Virginia law protects many of your things. These protections are called "exemptions." Most people who file Chapter 7 keep all of their belongings.

Understanding your exemptions and filling out the forms correctly is one of the most important parts of your bankruptcy case.

Talk to a lawyer before you file. Bankruptcy has many rules. Small mistakes can cost you property or get your case dismissed. A lawyer can help you avoid those mistakes.

• Free legal help may be available: Call 866-LEGLAID (866-534-5243) or visit virginialawhelp.org/get-legal-help to find a legal aid office in your area.

• You can also search for a bankruptcy lawyer using the National Association of Consumer Advocates (NACA) tool: consumeradvocates.org/findanattorney. Under "area of practice," select "bankruptcy" from the drop-down menu.

This article is a general overview to help you understand the basics of bankruptcy so you feel more prepared when you speak with a lawyer. Every situation is different. Please talk to a lawyer about your specific case.

What is bankruptcy, and who is the trustee?

Bankruptcy is a legal process where a federal court helps you deal with debt you cannot pay. In Chapter 7 bankruptcy, the court assigns an official to be the trustee. A trustee reviews everything you own to see if anything can be sold to pay your creditors (the people or companies you owe money to). But the trustee cannot touch property that is legally protected.

What are exemptions? 

Exemptions are the protections that say: "The trustee cannot take this for your creditors." Virginia law lists specific types of property that are off limits.

When you file Chapter 7, the court looks at what you own. But exempted items are off limits. Creditors cannot touch them.

What does Virginia protect? 

Here are the key Virginia exemptions: 

Your car

The first $10,000 of your car's equity is protected. Equity is the difference between what your car is worth and what you still owe on it.

It helps to understand two types of creditors:

• A secured creditor is one who has a legal claim on your property, like a car loan lender or title loan lender.
• An unsecured creditor is one who does not have a claim on your property, like a credit card company or medical provider.

Unsecured creditors cannot take your car if your equity is under $10,000. Secured creditors are different. If you have a car loan or title loan, you will need to work with your lawyer on a plan for that loan.

Your home

Homestead Exemption - House-only portion:

Virginia's homestead exemption protects $25,000 of home equity per person. A married couple can protect $50,000 total.

Homestead Exemption - Flexible portion:

There is a flexible portion that you can choose to apply to your home or to other property. This flexible portion is calculated in the following ways:

• Each person can claim $5,000 as a base amount. If a married couple files together, each spouse can claim this amount.
• Add $500 per dependent, usually a minor child. A married couple may count this only once between them. They may not each claim the same dependent.
• A person age 65 or older can claim an additional $5,000. Each qualifying spouse can claim this amount.
• A veteran of the U.S. armed forces with a 40% or higher service-connected disability can claim an additional $5,000. Each qualifying spouse can claim this amount.

Personal items

Virginia's "poor debtor's exemptions" protect many personal items. Check the full list of poor debtor's exemptions to see what items are protected.

What if I have more home equity than the exemption covers? 

If you are single and your home has more equity than your exemption protects, then Chapter 7 might not be the best choice. The trustee could try to sell your home to pay creditors.

If you are married, first check your deed to see if your home is held as "tenants by the entireties." If so, and you have individual debts, those creditors cannot come after your house.  If you have any joint debts, though, those creditors can come after the home.

What is a "preferential transfer" and why does it matter? 

A preferential transfer is when you paid a lot of money to one creditor shortly before filing for bankruptcy. The trustee can look back at your recent payments. The trustee may be able to "take back" that payment and split it among all your creditors.

If you are thinking about filing for bankruptcy, talk to a lawyer before making large payments to any single creditor. This includes paying back family members or friends.

Also, if you have recently lost a large amount of money to wage or bank account garnishments, tell your bankruptcy lawyer right away. If you act quickly, there may be a way to recover some of those funds.

What if I have a co-signer on a loan? 

Your bankruptcy covers your debts, but it does not erase your co-signer's responsibility. The creditor can still go after the person who co-signed with you.

Talk to a lawyer if you have co-signers on any loans.

What happens if I hide assets or make mistakes on my forms? 

If you fill out your exemption forms incorrectly, you could lose property you were allowed to keep. If you hide assets on purpose, you could face serious legal consequences. Bankruptcy fraud is a federal crime investigated by the FBI.

If you forgot something or made an honest mistake, tell your lawyer right away. There is almost always a way to fix an honest error. Hiding things is never worth the risk.

What should I do next? 

Exemptions are one of the most technical parts of bankruptcy. A lawyer makes sure you claim everything you are entitled to and that you do not accidentally lose something you could have kept.

• Free legal help may be available: Call 866-LEGLAID (866-534-5243) or visit virginialawhelp.org/get-legal-help to find a legal aid office in your area.

• You can also search for a bankruptcy lawyer using the National Association of Consumer Advocates (NACA) tool: consumeradvocates.org/findanattorney. Under "area of practice," select "bankruptcy" from the drop-down menu.

What should I be aware of when hiring a bankruptcy lawyer? 

Be sure to ask about all costs before you hire anyone. In Virginia, bankruptcy costs likely include a filing fee, a recording fee, and the lawyer's own fees.

Some lawyers quote only their own fees, without including court costs. Other lawyers quote the full package. The only way to compare prices fairly is to ask each firm for the full cost breakdown. That way you are comparing the same things.

Understanding the full costs is essential to making an informed decision.

For information on how to select a bankruptcy lawyer and how to prepare for your first meeting, see the NCLC’s “Surviving Debt” guide.