Will I Lose My Boat If I File For Bankruptcy?

Posted by William Kain on July 23, 2015 at 11:00 AM
William Kain

boat_file_for_bankruptcyIn Minnesota, owning a boat is a rite of passage. You have probably saved up for years to be able to buy a boat but now a recent financial crisis (i.e. job loss, medical bills, divorce, etc.) has made it difficult to keep up with your bills. You just do not have any money left over each month after paying your necessary living expenses to pay your debts. You are worried that if you file for bankruptcy, you will lose your unnecessary assets such as your boat. You do not need to worry. Many boat owners file for bankruptcy relief and keep their boats they’ve worked so hard for.

Protecting Assets in a Bankruptcy Filing

A common misconception about bankruptcy is that filing bankruptcy results in a person losing all of his or her assets. While it is true that some debtors may lose an asset, it is not as common as creditors would like debtors to believe. In most bankruptcy cases, the debtor retains all of his or her property except in cases where the debtor voluntarily chooses to surrender an asset to a secured creditor.

When a debtor files bankruptcy, the debtor is permitted to claim certain property “exempt” from creditors and the court. Bankruptcy exemptions protect the equity in the debtor’s assets up to the maximum value allowed by law. In Minnesota, debtors have the choice between using the federal bankruptcy exemptions or choosing to use state exemptions; however, the debtor has to choose one or the other — the debtor cannot use some federal exemptions and some state exemptions. Neither the federal nor the state exemptions include a specific exemption for boats. The federal exemptions do include a wild card exemption that may be used to protect the equity in a boat. Whether a debtor should use the federal or state exemptions depend on the debtor’s specific financial situation.

If the equity in the boat (the value of the boat less any liens on the boat) exceeds any applicable exemptions, a Chapter 7 trustee could sell the boat and use the funds to pay your creditors. Of course, this depends on the value of the boat. For example, a boat that has mostly sentimental value and very little actual value may not be worth the trouble of liquidating or a boat that has a high lien so that there is little to no equity does not benefit the trustee. However, whether to liquidate a boat that has equity above any exemptions or liens is up to the Chapter 7 trustee.

In some cases, the debtor may consider filing a Chapter 13 case to protect the boat. The debtor will pay a slightly higher bankruptcy plan payment but he or she would be able to keep the boat. The Chapter 13 trustee usually does not object to the boat unless the lien payment on the boat is extremely high and the debtor is only proposing to pay a very low percentage to unsecured creditors. Each case is different; therefore, you cannot assume that what happened in another Chapter 13 case will be the same outcome in your Chapter 13 case.

How to Determine if Your Assets are Protected or at Risk in a Bankruptcy?

Each bankruptcy case is different; therefore, in order to determine if your boat is safe or at risk, you must seek the advice of a competent, experienced bankruptcy attorney. The only way to know is to consult with an attorney before you file a bankruptcy case. An experienced attorney can give you his or her opinion in addition to the possible outcomes so that you can make an informed decision whether to file a bankruptcy case.

 

If you are facing unmanageable debt but have a boat or other property you would like to protect, speak with an experienced bankruptcy attorney. They will help you determine if your boat is at risk and help you find the best way to protect it and your other assets.

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Topics: Bankruptcy

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