Do They Always Take Assets During a Chapter 7?
Every Chapter 7 bankruptcy case is different, and many people who are considering Chapter 7 wonder if they'll lose everything they own. Filing Chapter 7 is never a guarantee of easy debt relief, but it's also not set in stone that you'll have to get rid of your property. In fact, most Chapter 7 debtors are able to keep everything.
Other People Are Reading
-
The Bankruptcy Estate
-
When you file your bankruptcy, you essentially lose ownership of all your property. The property becomes a part of the bankruptcy estate, which is a conglomeration of your assets and liabilities. The court appoints a trustee to administer your estate, which means he will sell nonexempt property, collect money and pay debts.
The Chapter 7 Trustee
-
Every Chapter 7 case has a trustee. The trustee's job is to liquidate assets, to void and recover certain pre-bankruptcy money or property transfers and to review your case for fraud. The trustee has the right to question you about your property and your finances, and he can also ask you for documents to prove what property you have, the value of your property, how much money you make, how much money you have and what you have done with your money. The trustee can liquidate any estate asset that he believes will provide creditors with a meaningful dividend. However, he can't sell assets that you have exempted.
-
Exemptions
-
Exemptions are what allow debtors to keep most or all of their things in a Chapter 7 case. The Bankruptcy Code, which is federal law, lists all the property you're allowed to keep, up to a certain dollar amount of value. The Bankruptcy Code also allows you to choose your state's exemption law instead, because states also have exemption statutes. Some states even prohibit you from using the exemptions listed in the Bankruptcy Code and force you to use the state exemptions. If you properly exempt all the equity in a piece of property, the trustee can't sell it. If you can only partially exempt the value of the property and the trustee does sell it, he must pay you your exemption, and he must pay off any liens that encumber the property.
Examples of Federal Exemptions
-
As of February 2011, Section 522 of the Bankruptcy Code allows you to exempt up to $3,450 in one motor vehicle. If you own a car worth $5,000 and you still owe $3,500 on it, you can exempt the $1,500 equity to protect the car. The trustee will not sell it, because he would have to pay off your car loan and pay you $1,500, which means he would have nothing left for creditors. If you own a car worth $5,000 and you have no liens, you can exempt $3,450 under the motor vehicle exemption. If the trustee sold the vehicle, he would have to pay you $3,450, although many trustees would not sell the vehicle in this situation, because after the trustee's fees and fees for an auctioneer, very little money would be available for creditors.
Compromising With the Trustee
-
You can also compromise with the trustee. If you own a $5,000 vehicle and exempt $3,450 of its value and the trustee demands that you turn the car over to him to sell, you can offer him money to keep the vehicle.
-
