Commonly asked questions by individuals filing individual or joint (husband and wife) Chapter 7 or Chapter 13 Bankruptcy Petitions

One of the most commonly asked questions by individuals who either need to or are at least considering the need to file for Chapter 7 or Chapter 13 protection under the United States Bankruptcy Code concerns, whether they will be able to keep all or substantially all of their assets. In the overwhelming majority of cases the answer is an unequivocal, yes.

In the vast majority of cases, debtors fall completely (100%) within the exemptions provided by the United States Bankruptcy Code. A bankruptcy exemption is by definition an amount of money and/or equity that a debtor or joint debtors are allowed to keep in a particular category of assets. If the debtor(s)' interest/equity in the specific category of assets is the same or less than the amount of the bankruptcy exemption than that particular asset cannot be attached or seized by either the Chapter 7 or Chapter 13 Trustee or by any of the debtor(s)' creditors. In most Chapter 7 and 13 cases, the decision as to whether or not a debtor has any interest/equity in a particular asset above that allotted by the United States Bankruptcy Code is made by the Chapter 7 and/or 13 Trustee. Below are a few of the many specific categories of assets, and the specific amount of the exemption/equity individuals and joint debtor(s) are allowed to keep in the asset or category of assets described.

The above list includes most of the major exemptions provided for under the U.S. Bankruptcy Code. There are many other less commonly used exemptions also provided for under Section 522 of the U.S. Bankruptcy Code. Under the wildcard exemption, a debtor or joint debtor(s) receive up to an $8,725.00 or $17,450.00 exemption in any particular asset or category of assets not covered by the specific exemptions included in the U.S. Bankruptcy Code.

In addition to a prospective debtor's knowledge of the above referred to Section 522 exemptions, prospective debtors need to realize that it is not the purpose of a Chapter 7 or 13 Trustee to strip a debtor of every single penny which is not protected by a specific exemption. The function of the Chapter 7 and 13 Trustee is to ascertain whether a debtor owns and/or has an interest in an asset that is substantially beyond the amount of the exemption provided by Section 522 of the U.S. Bankruptcy Code. If the Trustee determines that such an asset exists, then the trustee may locate and/or sell the asset, keep approximately 10% of the non-exempt portion of the asset as and for the Trustee's fees, and provide all of the debtor(s) unsecured creditors with an equal portion of any remaining funds from the sale of the assets. In most cases, the Trustee will require the debtor to sell the asset or require the debtor to pay the Trustee a cash amount for the non-exempt, value of the asset.

In the overwhelming majority of my cases, the assets owned by prospective individuals or joint debtor(s) are clearly within the scope of protection afforded by § 522 of The United States Bankruptcy Code. In the real world it is simply not worth a Trustee's time to locate an asset which the debtor might have a $1,000.00 equity interest in above that provided by Section 522; i.e. it simply would make no sense for a Trustee to do all the necessary work to locate and force a sale of such an asset since the Trustee's fee would only amount to $100.00 and the Trustee would only be able to split $900.00 up equally among all of the debtor(s)' unsecured creditors. Accordingly, in almost all cases, a Trustee will take this real world scenario into consideration before he/she takes any action to force a sale of a debtor(s) asset or require an equivalent cash payment from the debtor(s). By way of example, before a Trustee would seriously challenge a debtor(s) right to maintain all of his/her interest in their residence, almost every Trustee will lower by the fair market value of the debtor(s) residence before calculating the real property exemption allotted to debtors under Section 522.

The above information will hopefully make all individual(s) who are considering filing for bankruptcy protection aware of the importance of consulting with and being represented by an experienced bankruptcy lawyer who has expertise in dealing with these and other issues related to the filing of Chapter 7 and Chapter 13 petitions before The U.S. Bankruptcy Court. I mention this because there are many non-lawyers advertising their credentials to draft bankruptcy petitions and/or represent debtor(s) at the Trustee meeting (also called the 341(a) hearing) which is held shortly after bankruptcy petition is filed. Individuals should realize that a non-lawyer cannot appear and/or represent debtor(s) in Bankruptcy Court should a problem arise concerning these or any other legal issues.

Click here to contact our firm.