The “Keep and Pay” bankruptcy exemption allows an individual undergoing bankruptcy to retain possession of a specific asset, provided they continue to make the required payments on that asset. This provision is crucial for individuals who wish to keep essential items such as their car or home while navigating through the bankruptcy process.
Applicability
The “Keep and Pay” exemption is most commonly invoked in Chapter 7 bankruptcy cases. In these situations, the debtor agrees to keep making payments on a secured debt, such as a mortgage or car loan, while retaining the associated asset.
How It Works
- Secured Debt: The exemption applies to secured debts, which are obligations backed by collateral (e.g., a home or vehicle).
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Continued Payments: The debtor must continue to make regular payments on the secured debt to prevent repossession or foreclosure.
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Asset Retention: As long as the debtor keeps up with payments, they can retain possession of the asset despite the bankruptcy.
Types of Assets
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Automobiles: A debtor can keep their vehicle if they continue car payments.
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Real Estate: A home can be retained by continuing mortgage payments.
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Other Secured Loans: Applies to any secured loan where the debtor wishes to keep the associated asset.
Legal Considerations
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Reaffirmation Agreement: Often, the debtor must sign a reaffirmation agreement, legally recommitting to the debt despite the bankruptcy discharge.
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Exemption Limits: Not all assets qualify; there may be asset value or equity limits based on state or federal laws.
Examples
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Case 1: John files for Chapter 7 bankruptcy but continues paying his car loan to keep his vehicle.
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Case 2: Sarah files for bankruptcy but opts to keep making mortgage payments to stay in her home.
Historical Context
The “Keep and Pay” exemption evolved from the need to balance the debtor’s fresh start with practical considerations of holding onto necessary property. It reflects a blend of debtor relief and creditor assurance of payment continuity.
Related Terms
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Reaffirmation Agreement: A legal document wherein the debtor reaffirms commitment to a debt.
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Chapter 7 Bankruptcy: A bankruptcy form that involves liquidation of non-exempt assets to pay creditors.
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Secured Debt: Debt backed by collateral, providing the lender security if the borrower defaults.
FAQs
Can I use the 'Keep and Pay' exemption for multiple assets?
Do all states recognize the 'Keep and Pay' exemption?
Is a reaffirmation agreement mandatory?
Summary
The “Keep and Pay” bankruptcy exemption is a valuable mechanism for individuals seeking to retain essential assets while undergoing bankruptcy by continuing to make the necessary payments. It requires careful consideration of legal obligations and strategic financial planning to ensure successful asset retention amidst financial restructuring.
References
- U.S. Bankruptcy Code
- Legal Information Institute
- Nolo’s Comprehensive Guide to Bankruptcy
