Filing for bankruptcy under Section 7 of the U.S. Bankruptcy Code is often called “liquidation” because it requires the debtor to sell off his or her assets to repay creditors. This can include real estate, vehicles, and business-related property.
Under Chapter 7 of the bankruptcy code, certain assets are exempt from sale proceedings and can stay with the debtor. This means that not all assets are liquidated in a Chapter 7 bankruptcy.
Types Of Assets
There are certain types of assets that can be included in a bankruptcy estate and liquidated under Chapter 7. Knowing which assets are at stake can help you understand the potential implications of filing for bankruptcy.
There are three types of assets when filing for bankruptcy:
- Personal property. Material possessions are the things we own and use in our daily lives, like clothes, furniture, cars, and artwork. Having these things can make our lives more comfortable and enjoyable.
- Real property. Property that is not personal in nature, such as land or buildings.
- Intangible property. Intangible assets are those that don’t have a physical form but still have value. Things like child support, alimony, and retirement savings would all be considered intangible assets.
Nonexempt and exempt assets
There are certain assets that are exempt from bankruptcy proceedings. This includes things like clothing, tools that are necessary for work or health-related purposes, and other assets. Each state has its own specific exemptions, but there are also federal exemptions that exclude certain assets from being liquidated.
A court-appointed trustee is assigned to a bankruptcy estate to manage the debtor’s assets that are not protected under the Bankruptcy Code. These assets are sold for cash, which is then given to creditors.
What To List?
Assets must be listed in full in a bankruptcy filing. This list of assets, also known as a schedule of assets, must be provided to the court as part of the bankruptcy process. All asset types owned by the debtor must be included on this list.
In bankruptcy filings, both secured and unsecured assets must be reported. This includes, but is not limited to, the following:
- Business-related property
- Financial assets (e.g., investments or deposit accounts)
- Land or a primary or secondary home
- Personal and household items
- Property related to farming and commercial fishing
- Any other property otherwise not stated
If a debtor claims any of the listed assets as exempt, they need to file a separate schedule listing the assets for exemption.
As soon as a debtor files for bankruptcy, all of their assets become part of a bankruptcy estate. This estate is then administered and liquidated by a trustee, who uses it to pay off creditors. Only assets owned by debtors at the time of filing are included in this estate.
What happens if you don’t list all of your assets?
By signing your bankruptcy petition, you are swearing under penalty of perjury that all the information and assets you have listed are complete and accurate. This is a serious matter, so make sure that everything is correct before you sign.
Hiding or failing to report assets during bankruptcy proceedings could result in having your discharge petition denied or revoked. Additionally, omitting assets – whether accidentally or intentionally – could be considered bankruptcy fraud, a criminal charge. Perjury carries a penalty of up to $250,000 in fines, up to 20 years in prison, or both.
An estate without any nonexempt assets to liquidate is known as a no-asset bankruptcy case. The majority of Chapter 7 bankruptcy petitions are no-asset cases, according to the Administrative Office of the U.S. Courts.
When the trustee files a “no asset” report with the court, this means that there are no unprotected assets that can be sold and distributed to unsecured creditors. Consequently, they will not receive any distributions from the bankruptcy case.
As the trustee continues to uncover assets, they may still be able to be recovered and sold through the bankruptcy estate. The court will notify the debtor’s unsecured creditors of the situation and they will have a specified amount of time to file a proof of claim in order to secure any sale proceeds.
Debtors listing assets in bankruptcy should be aware of a few details that can affect the value of their estates and the assets they can claim as exempt:
- Different states have different lists of assets that are exempt from seizure. In addition to federally exempt assets, states can enforce their own list of exempt assets.
- There are limits to the value of exempt assets. States also set a limit on how much-exempted assets can be worth. For example, in California, jewelry is an exempt asset as long as it is valued at $8,725 or less.
- Couples who are getting a divorce may file for bankruptcy jointly or individually. A debtor can file for bankruptcy on their own or with their spouse. Regardless of how a debtor files, the non-filing spouse must also provide information about their assets to the court so that it can understand the financial situation of the household as a whole.
- A debtor can choose to reaffirm a debt, which means that they agree to continue making payments and being liable for the debt. The reaffirmation agreement is then filed with the court, and the creditor agrees not to repossess the property as long as the debt account remains in good standing.
No matter how small or insignificant you may think they are, be sure to disclose all of your assets upon filing for bankruptcy. It is better to err on the side of over-disclosure than to try and hide any assets.
You’ll need details about each asset you own or have an interest in when you’re filling out bankruptcy schedule forms. This includes a description of the assets, their values, and the value of your portion. Different states have different laws about what can be exempt from taxes in bankruptcy, so it might be a good idea to talk with a bankruptcy attorney to learn more about what applies in your case.