Will all of your property be sold if you file for chapter seven bankruptcy? Probably not, many people file for chapter seven bankruptcy and keep all of their property. Whether your stuff will be sold is a function of its value. If you own a $100,000 diamond ring, its going to be liquidated to pay back some of your creditors. On the other hand, if you have “normal” assets, you likely won’t lose a thing. When in doubt as to property value, have an appraisal done.
Put simply, you keep exempt property and lose non exempt property when you file for chapter 7 bankruptcy. Each state has laws that allow debtors to protect certain types of property depending on their value. Property that exceeds the value of the applicable exemption is subject to sale by the trustee. For this reason, it is important to meet with a bankruptcy attorney to discuss how filing for chapter 7 bankruptcy will affect your assets. Be sure to disclose all of your assets to your bankruptcy attorney. He or she can then tell you exactly what stuff you stand to lose before you file.
Sometimes, even non exempt property will be ignored by the trustee. Although non exempt property can technically be sold by the trustee to provide a fund to pay claims of creditors, in practice, trustees sometimes elect not sell assets that have little non exempt value. This is the case because the costs of doing so will consume the dollars collected. So, the trustee may simply elect to allow the debtor to keep assets that have only a small amount of non exempt value. The asset is deemed abandoned back to the debtor. Need an example? Let’s say you own a car worth $4,000. Your state exemptions only allow $3,500 of value in a car to be protected. The trustee will probably not go to the trouble of selling your car to get at the $500 of non exempt value. The sale process would be too much of a headache, $500 isn’t worth the trouble. Of course if your car is worth $15,000 it would be a different story.
If a trustee elects to sell an asset that is partially exempt, the debtor may be the most obvious purchaser. Who knows the asset better or wants it more than the debtor? The trustee may even allow the debtor to buy out the estate’s interest over a short time period. If the trustee sells a partially exempt asset to a third party, he must pay the debtor the amount of money equal to the allowed exemption from the sale proceeds. In our example of the $15,000 car and the $3,500 car exemption, after the car was sold, the debtor would be entitled to a check for $3,500 (the value of the exemption).
Proper use of exemptions can be one of the most important functions of a good bankruptcy attorney. If you are concerned that filing bankruptcy may cause your property to be sold, talk to an attorney.
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