Filing bankruptcy helps debtors discharge debt; but more importantly it helps them protect their valuable assets from creditors. When a debtor decides to file bankruptcy, the most important decision they will make is whether or not they will protect an asset. Chapter 7 bankruptcy allows the debtor to discharge debt after liquidating nonexempt assets while Chapter 13 bankruptcy allows the debtor to pay off debts over a period of time. But no matter which bankruptcy type the debtor chooses he/she must decide if it is worth it to protect certain assets.
Let's take a look at a few things debtors should consider:
Is The Asset Really Valuable?
Value can be measured in currency, utility or sentimentality. Although for the purpose of bankruptcy, it's not always wise to use sentimental value when making decisions. However, the first two value measurements should definitely find their place in the bankruptcy equation. Assets which have both a dollar value and a utility value such as a house with equity in it which provides shelter for a family are often worth protecting in bankruptcy. But an asset which is worth less than the lien on it or which has no practical value to the debtor may be surrendered in bankruptcy to the benefit of the debtor.
Is The Asset Affordable?
As is the case in both Chapter 7 and Chapter 13 bankruptcy, assets secured by a loan can only be protected if the debtor pays the loan. The question then becomes is the loan affordable? If it's a car loan for a high-end vehicle, the payments may not be affordable. A bankruptcy debtor might then decide to surrender the vehicle and purchase a much cheaper car with the permission of the bankruptcy court.