Keep and Pay

One kind of exemption from bankruptcy is to keep and pay. As long as payments are made, a person can maintain an item like a house or automobile.

Comprehending Pay and Hold

To keep an asset after a bankruptcy resolution, a person must agree to a payment plan and declare their intentions in court records. This is known as the “keep and pay” technique.

All bankruptcy exemptions relate to property that the petitioner is allowed to keep. The court may sell any additional nonexempt property to assist in paying off the filer’s outstanding debts.

Keep and pay shields a person’s assets from being repossessed and possibly liquidated, but it occasionally necessitates filing a formal declaration with the bankruptcy court demonstrating a payment plan. Usually, the impacted creditor must also approve this strategy.

How Pay and Hold Operate

Suppose it seems likely that creditors will be able to recover the total amount owed. In that case, they are generally willing to maintain and pay arrangements rather than perhaps accepting a lower amount in response to a court ruling. Furthermore, it frequently relieves the creditor of problems.

For example, a person files for bankruptcy and has significant house debt. The bank may eventually sell the home to pay off the remaining balance on the mortgage, although this may incur additional costs and take some time and effort. The bank may benefit from considering the possibility of receiving repayment under a keep-and-pay arrangement if that appears likely.

For instance, the filer in a Chapter 7 bankruptcy is usually asked what they want to do with each asset, such as surrendering it, keeping it and paying the remaining amount over time, retaining it and redeeming it, or using it for something else.

The individual submitting may, therefore, ask to keep and pay for specific items. Although the court won’t always grant such a request, many courts will try to honor the filer’s requests if they are presented sincerely. Depending on the kind of asset, its worth, and the outstanding balance, others have rules about what should be done with it. Guidelines might, for instance, specify whether an item is relevant to a person’s livelihood, such as a car that may be required for a person to go to and from work or whether it is illiquid and cannot be quickly sold to pay off a person’s debts.

Follow and Pay the Rules

States have different laws governing keep-and-pay as well as different bankruptcy exemptions. Most filers are required to follow the guidelines established by their home state. Some states, like California, have two sets of exemption regulations, one under state law and the other under a federal list of regulations.

Filers for bankruptcy must select one set of guidelines and adhere to them throughout the bankruptcy process.

For example, several states provide an exemption value for property. If the property’s value falls below the threshold established by the exemption regulations, you may keep it and pay for it.

Let’s take an example where a person files for bankruptcy and owns a $160,000 house with a $140,000 mortgage and $20,000 in equity. More than the value of the home, their state’s maximum exemption amount is $175,000. The filer would be entitled to keep the house in this case.

On the other hand, the home would surpass the exemption threshold if it was valued at $200,000 and had the same mortgage balance, leaving $60,000 in equity. To prevent the filer from obtaining equity, a court-appointed trustee must sell the property, pay the mortgage holder $140,000 from the sales proceeds, and divide the leftover money among other creditors.

Illustration of Hold and Pay

Sam’s job has been terminated, and he cannot pay his mortgage on time. Sam’s mortgage lender has implied that it will attempt to take possession of the property through foreclosure and has refused to discuss a new loan payment schedule. Sam files for bankruptcy as his bills and other debts increase.

Sam obtains a new job shortly after declaring bankruptcy, enabling him to pay the mortgage at a reduced rate compared to his prior lifestyle and perks. Sam will essentially need to have a more modest existence. Sam provides the bankruptcy court with a plan that breaks down the projected future mortgage payments and other costs. The court approves this strategy, and Sam is allowed to keep the house.

Conclusion

• The keep-and-pay plan lets you keep an item while still making payments, even after you’ve filed for bankruptcy.
• Keep-and-pay means that the person who owes money or is going for bankruptcy must be able to make payments on time.
• Each state has its own rules about “keep and pay.”