Many people considering filing bankruptcy believe that after filing bankruptcy they cannot purchase or own property for a certain amount of time. This is absolutely not true. Debtors who file bankruptcy can protect the property they own using exemptions. Acquiring additional property in the future is not restricted by the Bankruptcy Code, which is the set of laws governing bankruptcy filings in the United States.
Debtors cannot use property of the bankruptcy estate to purchase property. Property of the bankruptcy estate consists of the debtor’s nonexempt property which must be handed over to the trustee so that the property can be liquidated and the proceeds paid to the unsecured creditors. In addition, if the debtor experiences a financial windfall, such as winning the lottery, an inheritance, a property settlement, or life insurance benefits, within 180 days after filing the bankruptcy case, then that money or property is also part of the bankruptcy estate and may be liquidated and the proceeds paid to the creditors.
Debtors who use their own wages to purchase property after filing bankruptcy may keep their new assets. This property is not part of the bankruptcy estate, and does not need to be exempted. The trustee and the creditors do not have the right to seize property acquired post-petition in this way.
However there may be limitations on obtaining financing for the purchase of new property. In Chapter 13 bankruptcy cases debtors are not allowed to incur new debt without permission from the court or the trustee. Creditors may also have limitations on financing for debtors recently out of bankruptcy. Most recently discharge Chapter 7 debtors will not be able to obtain financing for a new home for at least two years. On the other hand, credit card companies are quick to make credit available to debtors who are recently out of bankruptcy because they know that they can’t file another Chapter 7 bankruptcy case for eight years.