Thursday 19 September 2019

Will I Lose My Property If I File Bankruptcy?

You may be considering filing a Chapter 7 bankruptcy petition but in researching your options, you have come across the following fact:  there is a risk of losing your assets when you file.  This article addresses that risk, discussing property of the estate and exemptions in bankruptcy and the ways in which you can keep your assets if you file.

Your Assets Become “Property of the Estate”

First, some basics.  When you file a Chapter 7 bankruptcy petition, all of your assets become “property of the estate,” which is defined broadly as “all legal or equitable interests of the debtor in property as of the commencement of the case.” This will include your real and personal property, your accounts and money owed to you or inherited by you.

Your bankruptcy  “estate” is thereafter administered by the Chapter 7 Trustee.  It is the Trustee’s role, among other things, to determine whether any of your assets can be sold for the benefit of your creditors:  that is, if an asset is seized and sold by the Trustee, the proceeds of the sale would be used by the Trustee to satisfy your debts in part.  The trustee is looking for assets which he can sell for a profit.

Your Attorney Applies Exemptions to Keep Property Out of the Estate

It is your attorney’s job to ensure that your assets are protected from seizure and sale by the Trustee.  Your attorney does this by “exempting” your assets from the bankruptcy estate using applicable statutes.  Statutory “exemptions,” available under federal and state law, are designed to ensure that a debtor is not completely destitute following bankruptcy, but rather, retains assets to the extent that he or she can maintain a reasonable lifestyle after bankruptcy and at the same time receive a fresh financial start. 

These exemptions allow a debtor to retain his or her home, vehicle, jewelry, household goods, collectibles, sporting equipment and the like.  However, there are limits to these exemptions, so it is important to work with your attorney to assess the value of your assets so that everything you wish to retain can be exempted from the estate. 

Once you and your attorney have organized this information for filing, your “schedules,” which are documents filed with your bankruptcy “petition,” will set forth the nature and market value of your assets as well as the applicable exemption statutes. 

What Do I Do if Property I Want to Keep is Not Exempt?

Most Chapter 7 filings are “no asset” cases:  in these cases the debtor’s attorney was successful in exempting all of the debtor’s property from the estate, leaving the Trustee with nothing to liquidate.

In the event that your interest in certain assets cannot be wholly exempted and you wish to retain that asset, it may be possible to do so and still file a bankruptcy petition.  For example, if you establish the market value of your home, and find that the equity in your home exceeds the amount of allowable exemption, you can file under Chapter 13 petition instead of Chapter 7 and over time pay creditors what they would have received had you filed a Chapter 7 and the Trustee seized and sold your home.  Under Chapter 13, you may only pay back only a small amount of the debt you owe. Your attorney can tell you more about this, should you find yourself in this position.  To find out more about the differences between Chapter 7 and Chapter 13 you should ask an experienced Bankruptcy and Debt attorney.

Before filing, you should also know that certain assets are not considered “property of the estate” and therefore cannot be seized by the Trustee.  These include, generally, funds paid into your pension as well as educational trusts, within limits.

Before we conclude, please take note of this important caveat:  this article is not legal advice, nor is it intended to create an attorney-client relationship.  The purpose of this article is merely to illustrate the means by which a debtor may retain his or her property.  This illustration is but one way in which the Bankruptcy Code can be a powerful tool for an honest but unfortunate debtor like yourself, when utilized fully.  An experienced bankruptcy attorney can guide you through the intricacies of exemptions and ensure that you do not lose your property in bankruptcy.

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