It is not unusual in this life to fall into financial hardship. But before you file for bankruptcy, it's important to arm yourself with facts so that you know what you are getting into.

When you file for bankruptcy, your property is handed over to a bankruptcy trustee who handles your assets on behalf of your creditors.

What happens then? Do you lose all your property or do you get to keep part of it? It all boils down to how you file your bankruptcy.

Chapter 7

Under chapter 7 bankruptcy, the trustee will sell your assets and use the money to offset your debt. However, you have the option of buying back your non-exempt property if you can afford it.

If you don't have any assets, you get to keep everything. This option is only available to you if your income is below a certain amount.

Chapter 13

If you file for chapter 11, 12, or 13 bankruptcy, your property will not be sold. However, it will be used to calculate the value of your assets.

You will then commit to pay a certain proportion of this amount to your creditors every month, over a period of three to five years. This amount is recovered from your income. Your debt must however be below a certain amount.

Exemption

There is an exemption clause that allows you to keep a part of your estate that you need for daily living and/or for work. The items that are subject to exemption will vary from state to state so find out what is included in your state.

These may typically include a home, household goods, a modest car, and your retirement account. You then have to list them as such. If you don't, they will be sold alongside your non-exempt items.

You may be able to keep your property that has been used as collateral, if you keep up with the monthly payments and there is no equity on the car or property.

It is normal to try to keep as much of your property as possible, but do not lie to the bankruptcy court. Do not try to hide your assets; otherwise you may be liable for fraud. This comes with a hefty penalty and jail time.

Filing for bankruptcy is a delicate and complex matter that if botched can be very costly. To avoid losing everything or going to jail, consult a lawyer like Greg Dunn Bankruptcy Attorney for advice.