Let Non-Exempt Property Go or Make a Deal
The question of what happens in the Chapter 7 Bankruptcy process when a filing debtor’s property is NOT fully protected by the available bankruptcy exemptions is a very basic question, the complete answer to which will be come from the advice of an experienced bankruptcy attorney and not from the text of the Bankruptcy Code statute you may find here and there on the internet.
The Bankruptcy Code says that non-exempt (non-protected) property that you own when you file a Chapter 7 bankruptcy will be liquidated, or sold, by the Chapter 7 Trustee to help repay your creditors, who otherwise will receive nothing in a Chapter 7.
In reality, either that happens, or, with your attorney, you work out a deal with the Trustee. (Or you litigate the issue with the Trustee, if he or she is making a demand that is outside the bounds of what the Bankruptcy Code and case-law permit—but we’ll leave that possibility out of this discussion for simplicity’s sake.)
The Secret of Property Liquidated in Chapter 7 Bankruptcy: The Trustee Would Usually Rather Take Cash
If you want to retain the property that is not protected by the available exemptions after filing a Chapter 7 (not everyone does), what happens next is a negotiation. As noted in the heading to this paragraph, a Chapter 7 Trustee will almost always be happy to work something reasonable out as it is more cost-effective for him/her in the administration of your “bankruptcy estate” (the legal estate containing all of your property that is created by automatic function of law when you file a bankruptcy case) to simply take a check from you rather than hiring an attorney to file the necessary motions, hire an appraiser, hire an auctioneer, lease space to store the property in, etc.
That said, if you have, for example, a motorcycle that is worth $12,000 and only $5,000 of its value can be exempted/protected, you have two choices: (1) Let the Trustee take it, auction it off, and turn over to you the $5,000 that is exempt, distributing the other $7,000 over to your creditors whose debts are otherwise going to be discharged by your Chapter 7, or (2) work out a deal with the Trustee to retain it. (Again, the 3rd choice of litigating the issue with the Trustee is outside the scope of this discussion.)
Even for Trustees, litigation is expensive and time-consuming, and, if you have the means, something can usually be worked out. Not all consumers do have the means, but, where it is possible, the Trustee would always take a check for some or all of the non-exempt portion of our example motorcycle than to have to fight about it.
Property Liquidated in Chapter 7 Bankruptcy: The Bottom-Line
No negotiation or litigated matter carries a guaranteed outcome, however. Thus, it is crucial that, if you are considering filing for Chapter 7 bankruptcy and you are an individual with higher-than-average assets, you not take the process upon yourself without experienced legal assistance. It is never more true than when working out such a negotiation with a Chapter 7 bankruptcy trustee that there is so much more to the practice of bankruptcy than just filling out forms.
While most Chapter 7 bankruptcies are “no-asset” cases, in which all of an individual’s assets are fully exempted and protected, not all are or can be. When this is not the case for you, your expectation should be that you will, if you do everything your attorney requests of you in an honest and forthright and time-sensitive manner, that you will successfully discharge your debt, but that your particular case may cost you a little more than just a flat attorney fee if you are attempting to retain all of your property.
If you are a Michigan resident and would like to explore your options for a Chapter 7 or Chapter 13 bankruptcy with an experienced Michigan bankruptcy attorney, please contact us at (866) 674-2317 or click the button below to schedule a free, initial consultation.
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