Keep and Pay

What Is Keep and Pay?

Keep and pay alludes to a type of bankruptcy exemption. It allows a person to keep a [asset](/asset, for example, a house or vehicle, gave that the individual keeps on making payments.

Figuring out Keep and Pay

Keep and pay is a bankruptcy strategy wherein an individual who needs to keep an asset following a bankruptcy resolution consents to follow a payment schedule and sets forward their goals in court reports.

All exemptions in bankruptcy allude to assets the filer will hold. Any remaining property that is nonexempt can be liquidated by the court to assist with settling the filer's outstanding obligations.

Keep and pay prevents individuals from having a particular asset repossessed and potentially liquidated, yet it in some cases expects them to file an official statement with the bankruptcy court that shows they have a plan to pay for the asset going ahead. Normally, this plan must likewise get the endorsement of the impacted creditor.

How Keep and Pay Works

For the most part, creditors are available to keep and pay plans in the event that it shows up probable they will actually want to collect on the entirety of the obligation owed, as opposed to perhaps settling for something less in view of a court order. Moreover, it can frequently kill bothers with respect to the creditor.

For instance, say a person files bankruptcy and owes a substantial amount on a home. The bank can eventually sell the property to recover the leftover amount owed on the mortgage, however it could require investment and considerable exertion, and in this manner, added cost. Assuming that that appears to be reasonable, it very well may be invaluable for the bank to take the risk of getting reimbursed under a Keep-and-Pay agreement.

For every asset in a Chapter 7 bankruptcy, for instance, the filer commonly is asked how they need to manage every valuable piece of property, including whether they wish to surrender it, hold and recover it, keep it and pay what is owed over the long run, or accomplish something different with it.

Hence, the person filing can request to keep and pay for particular things. The court will not necessarily in every case consent to such a request, be that as it may, many courts try to follow the filer's desires assuming they are made sincerely. Others have rules on how to manage assets in view of the type of asset, its value, and the excess amount owed.

For instance, rules could address whether an asset is illiquid, and can only with significant effort be sold to cover a person's obligations, or whether an asset is relevant to a person's occupation, for example, a vehicle that might be essential for a person to get to and from work.

Keep and Pay Rules

Rules with respect to keep and pay and different bankruptcy exemptions change by state. Most filers must utilize the rules set forward by the state in which they live. In any case, a couple of states, for example, California have two sets of exemption rules — one under state law and the other a federal rundown of rules. Bankruptcy filers need to pick one set of rules or the other and use them reliably all through the bankruptcy procedures.

For property, for example, many states set an exemption value. You can keep and pay on the off chance that the property value is worth under a threshold set by the exemption rules.

For instance, 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 permits an exemption amount up to $175,000, which surpasses the value of the home. In this occasion, the filer would have the option to keep the home.

Alternately, assuming that the house was worth $200,000 with the same mortgage balance, leaving $60,000 in equity, it would surpass the exemption threshold. This would require a court-named trustee to liquidate the property, pay the mortgage holder $140,000 from the proceeds, and to disperse the excess funds to any extra creditors, prior to the filer getting any of the equity.

Illustration of Keep and Pay

Sam has been fired from employment and is unable to make ideal mortgage payments. Sam's mortgage lender won't reconsider the terms of the loan payment and has intimated that it will look to hold onto the property by means of foreclosure. In the mean time, as different obligations and expenses climb, Sam enters bankruptcy.

Right subsequent to filing for bankruptcy, Sam gets another line of work that will turn out sufficient revenue to make the mortgage payments, yet with several reductions to previous lifestyle and conveniences. In effect, Sam should carry on with a more thrifty life. Sam submits a plan to the bankruptcy court specifying a breakdown of the proposed new mortgage payments and expenses. The court endorses this plan, and Sam will keep the house.

Features

Keep and pay is a strategy to keep an asset while continuing to make payments on it, even subsequent to having declared bankruptcy.
Keep-and-pay expects that the debtor or person filing for bankruptcy can keep up with payments for the asset.
Rules with respect to keep-and-pay differ by state.