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.
Basically, whenever you file bankruptcy, you list ALL of your assets. Your assets include your house, car, items in your house, 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.
Exempt assets are protected from your creditors which, in turn, means you get to keep them. 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.
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. 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.
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? 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.
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. 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).
The take home message is that most people who file bankruptcy are worried they will lose something. I hear it all the time–Will I lose my house…. car…. motorcycle…. retirement account?
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. Are you ready to take the next step? Contact us today for a FREE, no-obligation consultation to explore your options with experienced staff.