“At Risk” Property During Chapter 7 Bankruptcy
Chapter 7 bankruptcy is generally a numbers game between the bankruptcy trustee and the debtor. The trustee seeks to liquidate the debtor’s non-exempt assets to pay creditors, and the debtor tries to avoid liquidation of any property. When property is identified by the trustee as non-exempt, the trustee may ask the debtor to turn over the property (or its cash equivalent). The trustee will then liquidate the property and distribute the proceeds to creditors.
The United States Trustee Program reports only around four percent of all Chapter 7 bankruptcy cases are “asset cases.” In other words, statistically only one case in twenty-five has an asset that can be converted to cash and distributed to creditors. Some common types of non-exempt assets include:
• Cash money
• Tax refund
• Vehicle equity
• Home equity
• Misidentified financial account
• Unlisted property
Whenever a non-exempt asset is found by the bankruptcy trustee, the debtor’s case comes under greater scrutiny, the case is generally prolonged while the asset is administered, and creditors are invited to file proof of claims to participate in the distribution of the asset.
The key to keeping property during a Chapter 7 bankruptcy is early identification and full disclosure with your bankruptcy attorney. Poor communication between the client and attorney is usually the cause of “at risk” property. Every bankruptcy attorney has a story about a client who informs the trustee at the 341 meeting of creditors, “I didn’t tell my attorney about this property, but. . .” This story seldom has a happy ending for the client and usually results in the loss of that property.
There are many ways to protect property during a Chapter 7 bankruptcy. Be sure to discuss all of your assets with your attorney. If you have doubts whether you have an ownership interest in property, discuss it with your attorney. Your attorney can provide you legal options to protect your assets and avoid “at risk” property.