Understanding Keep and Pay
Keep and pay, a bankruptcy exemption strategy, allows individuals to hold onto assets, like a house or car, that would have been sold off to repay debts. Under this arrangement, borrowers must make payments to the creditor on the retained asset.
Key Takeaways
- Keep and pay permits borrowers to retain nonexempt assets post-bankruptcy filing.
- Debtors agree to repay creditors an amount equivalent to the asset’s value in keep-and-pay scenarios.
- Keep-and-pay rules differ across states.
Understanding Keep and Pay
A bankruptcy exemption refers to the assets the filer can retain, as opposed to nonexempt assets that can be sold to settle debts.
The keep-and-pay strategy shields specific assets from repossession and potential liquidation, often necessitating an official payment plan filed with the bankruptcy court, approved by the creditor.
How Keep and Pay Works
Creditors are inclined towards keep-and-pay agreements if they believe in full debt repayment potential, avoiding legal complications and expenses.
For instance, a bankrupt individual with a significant mortgage may opt for keep-and-pay to avoid potential foreclosure and provide creditors the chance of full repayment.
In a Chapter 7 bankruptcy, asset decisions involve surrender, retention, redemption, payment over time, or alternatives.
Court decisions on keeping and paying assets vary based on asset type, value, and outstanding debt.
Courts consider asset liquidity and necessity for the debtor’s livelihood in keep-and-pay evaluations.
Keep and Pay Rules
States have varying keep-and-pay regulations, with filers following state-specific or federal exemption rules consistently.
States may set exemption value limits for property retention based on asset worth.
Example scenarios illustrate asset retention eligibility under different property value and exemption thresholds.
Property value relative to exemption thresholds can necessitate trustee liquidation and debt repayment.
While keep-and-pay arrangements safeguard vital assets, avoiding bankruptcy through financial assistance may offer more long-term benefits.
Example of Keep and Pay
A narrative illustrates how keep-and-pay aids individuals in retaining assets like a home post-bankruptcy by restructuring payments.
Can I Apply Keep and Pay to All of My Large Assets?
While keep-and-pay may suit substantial assets like a home, most assets undergo liquidation for debt settlement, with creditor agreement contingent on financial lifestyle changes.
Is There a Dollar Limit to Keep and Pay?
States enact individual exemption ranges, some employing both state and federal criteria. Knowing state guidelines is crucial for retaining nonexempt assets during bankruptcy.
Do You Still Have to Pay Debt After Bankruptcies?
Debts not dischargeable in bankruptcy, besides keep-and-pay agreements, are specified across bankruptcy chapters, emphasizing repayment obligations.
The Bottom Line
A keep-and-pay strategy allows asset retention post-bankruptcy, provided debtors adhere to state bankruptcy exemption rules.