When a person files for bankruptcy, there are laws in place that prevent creditors from seizing assets or property that are essential to living and working. These are known as bankruptcy exemptions and vary by state. They can include the home and vehicle you use to get to work, tools you need for your job, clothing, medical supplies, a portion of your equity in your primary residence and more. However, some assets that are not exempt from liquidation may be sold by a trustee to pay off creditors. Thankfully, the attorneys of Cain & Herren, ALC can help you keep more of your assets by classifying them as exempt.
In most cases, when someone files for Chapter 7 bankruptcy (also called a liquidation bankruptcy), the trustee will sell nonexempt property and use the proceeds to pay off unsecured debts. Exempt property includes the family/matrimonial home, your primary vehicle and a portion of your equity in these properties, clothing, tools you need for work and Social Security benefits. Other valuable property can also be protected from the trustee by making it an asset of a trust or re-titling assets, though these strategies must comply with legal requirements that differ by state.
What Assets Can Be Seized in Bankruptcies?
Creditors can only seize property that falls under the scope of a bankruptcy’s “Bankruptcy Estate.” This is the collection of all assets and property owned by a filer on the date of filing, including real property such as a house or mobile home, personal property such as furniture and jewelry, and intangible property like cash in accounts, tax refunds and money owed to the filer.
The trustee is only allowed to sell or otherwise dispose of nonexempt property if it’s deemed to be in the best interest of creditors. The trustee must give a buy-back offer for nonexempt property that is sold and must be in the best interest of the filer to do so. This can be complicated and requires the assistance of an experienced attorney.
Fortunately, most people can keep their assets by claiming the appropriate bankruptcy exemptions. The rules and limits on these exemptions vary by state, so it’s important to consult an experienced bankruptcy attorney before filing.
In addition to claiming the proper bankruptcy exemptions, there are other ways to protect assets in bankruptcy, such as transferring them to a trust or re-titling the property. These strategies must comply with legal requirements that differ by location and state, such as how long an asset has been owned, how it was purchased and whether it was gifted within two to four years of the bankruptcy filing. Your Chapter 7 bankruptcy lawyer can apprise you of these and other less-common techniques for protecting your assets.
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