When thinking about what assets are at risk when you file a bankruptcy, the first thing you have to look at is whether or not your "stuff" has any "equity." Equity is the value of your stuff (a home, for example) minus the amount you owe to the lender or the lenders (the amount of your mortgage(s) including lines of credit). If your assets have equity and that equity cannot be protected, then you will need to pay your creditors something. For example, you have a home worth $500,000. There is a first mortgage of $300,000 and you have a home equity line of credit for $250,000. You would calculate the equity in your home this way:
What Is This "equity" That Everyone Talks About?
In Chapter 7, Can I Keep My Stuff?
Bankruptcy is a way to legally get rid of, or "discharge," certain debts. The most common debts that are discharged in Chapter 7 are medical and credit card bills. Since the recent mortgage crisis, many people are also discharging any remaining debts they owe due to the foreclosure of their real property. Some tax debts can be discharged, but discharging tax debt is tricky.
