When you file bankruptcy, all of your property, subject to certain exclusions, becomes property of the bankruptcy. The trustee, acting as the representative of the estate, is charged with collecting and selling the property to pay creditors. Property of the estate is defined very broadly under the Bankruptcy Code to include all interests of the debtor in property at the time the bankruptcy is filed. It can include some kinds of community property as well as property involved in some kinds of transfers by the debtor prior to the filing of the bankruptcy. It can also include property to which the debtor becomes entitled after the filing of the bankruptcy, by inheritance, as a result of a divorce settlement or decree, or as a beneficiary under a life insurance policy. Among the various types of property excluded from the estate are education IRAs and employer and employee contributions to certain types of employee benefit plans, deferred compensation plans, and tax-deferred annuities.
In addition to property excluded from the definition of property of the estate, a bankruptcy debtor is entitled to keep many kinds of exempt property. The kinds of property that a debtor may exempt and the dollar limitations for each exemption vary from state to state. Generally speaking, some of the more common types of exempt property include the debtor’s interests a residence, a vehicle, household goods, jewelry, books and tools of trade, life insurance, health aids, social security and unemployment compensation, veterans’ benefits, disability benefits, alimony, certain kinds of pension and profit-sharing plans, crime victim awards and personal injury awards. These examples are subject to many qualifications and may not apply in your state.
When you file for bankruptcy, your documents include a schedule of claimed exemptions. Creditors or other persons interested in your case are entitled to object to your exemptions and it is their burden to prove that they are improper. The purpose of exemptions is to enable a debtor to continue day-to-day life after bankruptcy and to make a fresh financial start. Many debtors have only household goods with little resale value. Moreover, when property is co-owned, the law looks only to the value of the debtor’s share. In most Chapter 7 cases, all of the debtor’s property will be exempt and nothing will be surrendered to the trustee.
Debtors with substantial non-exempt assets are more likely to file under Chapter 13. In a Chapter 13 case, the debtor selects exemptions just as in Chapter 7, but typically is able to keep all of his or her property whether or not it is exempt. In Chapter 13, a debtor’s exemptions are used to determine whether the plan satisfies the “best interests of creditors” test. Under this test, in order for the plan to be confirmed, the debtor must show that creditors will receive at least as much as they would have received had the case been filed under Chapter 7. If the Chapter 13 plan meets this requirement, along with several others, the debtor may be entitled to keep property in excess of the exempt amounts.
Recent Comments