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Keep and Pay: Definition, Rules & Benefits

Updated: February 23, 2023

Having to declare bankruptcy can be a stressful experience. 

In most cases, people have to liquidate their assets in order to repay their debts to creditors. But there are some cases where they can avoid this. 

This is what’s known as a keep and pay. But what exactly is keep and pay? And what are its benefits?

Read on as we take a closer look at this form of exemption.

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    • Keeping an asset while making payments on it even after filing for bankruptcy is known as the “keep and pay” technique.
    • Keep-and-pay requires that the debtor or person filing for bankruptcy is able to keep up with payments for the asset.
    • Different states across the U.S.A have different keep-and-pay laws.

    What Is Keep and Pay?

    Keep and pay is a specific kind of bankruptcy exemption. When a person continues to make payments, it allows them to keep an asset such as a house or automobile.

    Most creditors are amenable to retain and pay agreements. This is the case if it seems likely that they will be able to recover the whole amount of the debt, as opposed to maybe agreeing to anything less in accordance with a court ruling. Additionally, it frequently helps the creditor avoid difficulties.

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    How Does Keep and Pay Work?

    A person who wishes to keep an asset after filing for bankruptcy can agree to adhere to a payment schedule and declare their intentions in court records.

    When it comes to bankruptcy, all exemptions refer to property that the filer gets to keep. The court may liquidate all other nonexempt property to assist in paying off the filer’s outstanding debts.

    Keep and pay safeguards people from having a specific asset repossessed and possibly liquidated. But it occasionally necessitates that they submit a formal declaration to the bankruptcy court that demonstrates they have a strategy to continue making payments on the asset. Normally, the impacted creditor must also consent to this plan.

    What Are the Rules of Keep and Pay?

    Each state has its own bankruptcy rules and laws governing keep and pay and different bankruptcy exemptions. Most filers are required to follow the laws in effect in their state of residence. Nevertheless, some jurisdictions, like California, have two sets of exemption regulations—one set governed by state law and the other by a list of federal regulations.

    Bankruptcy petitioners must select one set of guidelines or the other and adhere to it throughout the bankruptcy process.

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    What Are the Benefits of Keep and Pay?

    A key question is what benefits keep and pay offers to bankrupt entities. People who file for bankruptcy have the option to “keep and pay,” which stops some assets from being liquidated. The tactic is advantageous to creditors in addition to borrowers. Creditors are typically willing to keep and pay if they believe they will still be able to collect payments from their insolvent debtors.

    The fact that it takes time and effort to assess and dispose of the assets is one of the causes. Additionally, due to time limits, this kind of illiquid asset can only be sold at a discount.

    Examples of Keep and Pay

    Let’s say that a person is forced to file for bankruptcy. They have a home that is worth $400,000 but they also have an outstanding mortgage balance of $370,000 and $30,000 in equity. 

    In their state, there is an exemption that amounts to $500,000. This exceeds the value of their home. In this case, the person filing for bankruptcy would be able to keep their home. 

    However, if the home was worth $550,000 and had the same mortgage, then it would exceed the exemption threshold. The court-appointed trustee would then be required to liquidate the property and pay the mortgage holder $370,000 from the proceeds. The remaining liquidation balance would be paid to any additional creditors. 


    Keep and pay is a useful exemption that in certain circumstances can benefit both the debtor and creditor

    It allows the debtor to keep hold of assets that they would otherwise have to liquidate, and it allows the creditor to still regain its credit by the debtor continuing their repayments.

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    What Can You Not Do After Filing Bankruptcies?

    You are required to abide by specific rules when you are bankrupt. These guidelines are known as “restrictions.” While they differ in some states, the main things you can’t do include taking out a further line of credit, or acting as an insolvency practitioner. 

    Do You Have to Pay Back Debt After Bankruptcies?

    When you declare bankruptcy, most of your debts are discharged and you are no longer responsible for paying them. Not all obligations are discharged by bankruptcy, so it’s crucial to determine which of your bills won’t be and to create arrangements to deal with them.

    What Happens After You Pay Off Chapter 13?

    Any leftover qualifying balances are eliminated once all plan payments have been made under chapter 13. You are also no longer subject to collection efforts by creditors.


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