how keep and pay works
generally creditors are open to keep and pay plans if it appears likely that they will be able to collect on the entirety of the debt still owed rather than possibly settling for something less based on a court order in addition it can often eliminate hassles on the part of the creditor for example say an individual files for bankruptcy and owes a substantial amount on their home the bank can eventually sell the property to recoup the remaining amount owed on the mortgage but it could take time and considerable effort and thus added cost if that seems likely it could be more advantageous for the bank to take the chance of potentially getting fully repaid under a keep and pay agreement for each asset in a chapter 7 bankruptcy the filer is typically asked what they want to do with each valuable piece of property including whether they wish to surrender it retain and redeem it keep it and pay what is owed over time or do something else with it 1for this reason the person filing can request to keep and pay for particular items the court won t always agree to such a request but some courts will try to follow the filer s wishes if they are made in good faith other courts have guidelines on what to do with assets based on the type of asset its value and the remaining amount owed as an example one court s guidelines could address whether or not an asset is illiquid and cannot easily be sold to cover a person s debts or whether an asset is pertinent to the debtor s livelihood such as a car that may be necessary for them to get to and from work keep and pay rulesrules regarding keep and pay vary by state most filers must use the rules set forth by the state in which they live however a few states like california have two sets of exemption rules one under state law and the other a federal list of rules 2 bankruptcy filers need to choose one set of rules or the other and use them consistently throughout the bankruptcy proceedings with property for instance some states set an exemption value you can keep and pay if the property value is worth less than a threshold set by the exemption rules say a person filing for bankruptcy has a home worth 160 000 with an outstanding mortgage balance of 140 000 and 20 000 in equity their state of residence allows an exemption amount of up to 175 000 which is greater than the value of the home in this instance the filer would be able to keep the home conversely if the home was worth 200 000 with the same mortgage balance leaving 60 000 in equity it would exceed the exemption threshold this would require a court appointed trustee to liquidate the property pay the mortgage holder 140 000 from the proceeds and distribute the remaining funds to any additional creditors before the filer can receive any of the equity although a keep and pay agreement can ensure your most important assets won t be seized you ll be able to save more if you can avoid bankruptcy altogether if you re struggling with your debt payments one of the best debt relief companies or credit counseling agencies may be able to help example of keep and paysam has been fired from their job and is unable to make timely mortgage payments sam s mortgage lender refuses to renegotiate the terms of the loan payment and has insinuated that it will seek to seize the property via foreclosure meanwhile as other debts and expenses climb sam enters bankruptcy right after filing for bankruptcy sam finds a new job that will provide enough income to make the mortgage payments but it will require several cutbacks regarding their previous lifestyle and amenities in effect sam will have to live a more frugal life sam submits a plan to the bankruptcy court detailing a breakdown of the proposed new mortgage payments and expenses the court approves this plan and sam gets to keep their house can i apply keep and pay to all of my large assets keep and pay may be feasible for some large assets such as a home but most of your assets will be liquidated to repay your debt a creditor is more likely to agree to a keep and pay agreement if they see you ve changed your financial lifestyle to accommodate payments or if they might have trouble recouping their investment 