With a no-asset chapter 7 bankruptcy, the debtor will not lose any of their property.
A “no-asset” Chapter 7 bankruptcy means a you do not have assets that the bankruptcy trustee can sell to pay your creditors. Let me take a few steps back to answer the question more thoroughly.
Filing for Bankruptcy? You Must List All of Your Assets
Basically, whenever you file bankruptcy, you are required to list ALL of your assets. Your assets include your house, car, items in your house, financial assets, and other tangible items. Your assets may also include some things that are easily forgotten like bank accounts, life insurance, inheritance, and potential lawsuits.
A good bankruptcy attorney will give you some type of workbook to help you remember your assets.Take your time when filing this workbook out. Forgetting to list an asset can cause you to lose that asset. Once you have listed all of your assets, your bankruptcy attorney will look at exemptions to determine if your assets are exempt.
You Will Not Lose Everything: Exempt assets are Protected from Creditors
Exempt assets are protected from your creditors which, in turn, means you get to keep them. In contrast, nonexempt assets can be sold by your bankruptcy trustee to pay your creditors. What type of exemptions you qualify for are determined by state law. There are some unusual and very specific rules to determine which state law you have to use to determine exemptions and I am not going to bore you with such a miniscule and technical area of the law today.
Bottom line: If you have moved from one state to another state in the last two years, you need to speak to an experienced bankruptcy attorney where you live to determine which state’s law you need to look at when determining your exemptions. Since exemptions vary from state to state, some states have very generous exemptions and some states are stricter about which of your assets are protected from creditors.
Understanding Chapter 7 Bankruptcy Exemptions in Texas
Since I practice bankruptcy in Texas and 98% of the time I use Texas law to determine my client’s exemptions, my comments are going to be directly specifically at Texas and Federal exemptions which I am allowed to use in Texas. Under Texas and Federal exemptions, it is really hard to lose an asset in a bankruptcy.
The vast majority of the bankruptcies I have filed are “no-asset” Chapter 7 bankruptcies. That means I was able to exemption every asset the individual had so they kept all of their property. To determine if you qualify for a no-asset bankruptcy, you should speak to an experienced Chapter 7 lawyer who can review your individual circumstances. Though, for reference, typically, I only work on one to two asset cases a year. That should give you some perspective as to how rare asset Chapter 7 bankruptcies are in Waco, Texas where I practice.
How Much Cash is Exempt in Chapter 7?
If you are concerned about any of your assets, you need to speak to an experienced bankruptcy attorney in your area. But what happens if you have a non-exempt asset? Many people have questions and concerns about how much cash they can have in the bank when filing for bankruptcy. If you declare bankruptcy, will you lose literally every dollar that you have in your savings? The answer is no: some cash can be exempted in a Chapter 7 case. For example, typically under Federal exemptions, you can have approximately $20,000.00 cash on hand or in the bank on the day you file bankruptcy.
The vast majority of my clients have considerable less than $20,000.00 in the bank the day I file their bankruptcy. However, for the sake of my example, let’s say, you had $23,000.00 in the bank the day I filed your bankruptcy. The Chapter 7 Trustee could technically take the amount over the exemption amount and pay that amount to your creditors.
So, you would keep $20,000.00 (the exempt amount) and the trustee would take $3,000.00 (the non-exempt amount) and give that to your creditors. You would not owe your discharged creditors any more money and you still have a successful bankruptcy. While this example may seem extreme, I have worked on a bankruptcy where the individuals had more than $20,000.00 in the bank the day we filed their bankruptcy.
Non-Exempt Assets are Not Always Lost in Bankruptcy
Even if you have non-exempt assets that the bankruptcy trustee could sell, the trustee may choose to abandon those assets if the asset is small or difficult to sell. Timeshares are a non-exempt asset I see trustees abandoned frequently. The trustee would have to find a buyer for the timeshare and then make a distribution to creditors. Frequently, trustees will abandon these timeshares rather than search late night commercials to find a timeshare buyer.
The non-exempt asset is just not worth enough to justify the administrative cost and effort to sell. Trustees will frequently abandon non-exempt assets if they are worth less than $4,000-$5,000.00. However, you can’t count on that. For example, I read an article this weekend about trustees who are taking non-exempt property worth less than $4,000.00. (see http://www.nwitimes.com/news/local/lake/hammond/bankruptcy-debtor-s-downfall-and-trustee-s-boon/article_3f060888-f764-5095-8d6f-012dd33f124d.html). Ultimately, what happens to a non-exempt asset will be determined on a case-by-case basis by the trustee.
Summary: What You Need to Know About Chapter 7 Bankruptcy Texas Exemptions
The take home message is that most people who file bankruptcy are worried they will lose something. I hear questions like this all the time. Will I lose my house in Chapter 7 bankruptcy? Will I lose my car in Chapter 7 Bankruptcy? Can I protect my retirement account in Chapter 7 Bankruptcy?
In Texas, you probably won’t lose anything of your assets as long as you hire an experienced bankruptcy attorney and you are honest with them.
Remember, if you are filing for Chapter 7 bankruptcy it is imperative that you list all of your assets. There are exemptions available and you may eligible for a no-asset bankruptcy — but if you fail to disclose your assets you risk losing them.
Get Help From Our Waco, TX Chapter 7 Bankruptcy Lawyers Today
Are you ready to take the next step? We can help. At the Law Office of Simer and Tetens, our skilled Texas bankruptcy lawyers have extensive experience handling ‘no asset’ Chapter 7 bankruptcy cases. No matter your financial circumstances, we are committed to helping you find a sustainable solution. To set a FREE, no-obligation consultation, please do not hesitate to contact us today. With an office in Waco, we represent clients in McLennan County and throughout Central Texas.