What is a Bankruptcy Estate?
That’s a great question! First, remember that bankruptcy is a formal legal process that stops your creditors from collecting payment directly from you.
Filing bankruptcy creates an imaginary barrier around all your assets. Everything inside the barrier is called the bankruptcy estate. Section 541 of the Bankruptcy Code defines the estate as “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541.
The estate temporarily owns everything you owned when you filed bankruptcy. The bankruptcy estate also extends to property which you may not yet own but in which you have a future interest, such as inheritances from someone who died, life insurance proceeds, or the right to sue for an injury or other money owed to you.
Who Controls the Bankruptcy Estate?
In Chapter 7, the trustee generally controls the bankruptcy estate. Trustees are independent attorneys or accountants appointed by the Office of the United States Trustee. The trustee’s primary job is to determine what property is included in the estate and its value. During the Chapter 7, the trustee has final say over most major financial transactions. If the trustee identifies assets that can be liquidated, they take those assets, sell them, and distribute the proceeds to creditors.
Does this Mean That I’ll Lose All of My Belongings?
We strongly recommend having an experienced attorney throughout the bankruptcy process. Bankruptcy law is complex. Strategically utilizing allowable exemptions to protect assets is just one job of a qualified bankruptcy attorney.
Exemption strategy is critical to protect your assets, especially in Chapter 7. The trustee can not sell an asset if it is fully exempt. In fact, the vast majority of those who file Chapter 7 Bankruptcy keep all their property thanks to the exemptions.
While most Chapter 7 bankruptcy estates contain only exempt assets, incorrectly claimed exemptions can result in the trustee liquidating valuable assets like homes or cars that could have been protected. Sometimes, it does not make sense to file Chapter 7 bankruptcy because assets exceed the exemption limits. In those cases, a Chapter 13 bankruptcy with a repayment plan might be a better alternative. An experienced bankruptcy attorney can guide you through the decision process.
What Are Some Examples of Exemptions?
There are more than a dozen exemption categories. The most used exemptions are for home equity, the value of a single automobile, and the “wild-card” exemption that can be applied to anything you own. Each exemption category has a dollar limit that changes from time to time. A twenty-year-old Toyota Camry worth $3,000 would likely be exempt under the motor vehicle exemption. A brand new luxury SUV worth $60,000 with no loan, on the other hand, would likely not be exempt.
Can I Take Steps to Reduce My Assets So I Have a Smaller Bankruptcy Estate?
It depends. Some methods to reduce assets cause no problems, while others could land you in hot water. Spending your savings to pay for basic groceries or rent while you are unemployed would probably not raise any eyebrows. Transferring assets to friends or relatives, on the other hand, will likely draw scrutiny and could result in an unsuccessful bankruptcy and/or litigation against the recipient. Before undertaking any specific course of action, consult with an attorney about your specific circumstances.
What Happens After Exemptions are Applied?
Any asset worth more than the allowed exemption is subject to liquidation in Chapter 7. Fully exempt assets are not liquidated. Any assets not liquidated when the Chapter 7 case closes are removed from the bankruptcy estate and returned to full control of the debtor.
What Should I Do Next?
We recommend reaching out for a free consultation. We will conduct a brief review of your income, assets, debts, and other circumstances to see if bankruptcy can help you.
It is critical that you be transparent about your finances so we can give an accurate assessment.
Without transparency, your bankruptcy petition will be in jeopardy, your property (or even an interest in property) can be seized and liquidated by the Trustee, and you may face sanctions.
Even when in doubt, disclose the information to the attorney so that we can best work to protect you and what’s yours.
Bankruptcy is designed to help you get a fresh start, not to punish people with debt. It is, however, a complicated legal process that can have serious consequences. You should speak with an attorney to understand the benefits and risks of any specific strategy.
Give us a call and schedule your free consultation.
We have decades of experience in Chapter 7 bankruptcy. We have helped countless clients retain their possessions on their way to a fresh financial start.
How Can I Get in Touch?
Call the Law Offices of Lee M. Perlman at 856-751-4224 to request a consultation about how bankruptcy or other debt resolution services might help you.
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