When most, if not all, clients choose to file a chapter 7 bankruptcy case, they typically have a question in one form or another:
“What property do I get to keep when I file bankruptcy?”
This is an obvious, reasonable, and paramount question in the circumstance of anyone considering bankruptcy.
It’s generally good news. Most chapter 7 debtors don’t have enough assets to qualify for any type of sale or liquidation by the Chapter 7 Trustee. Many chapter 7 cases are deemed “no-asset” cases with their debtors retaining most, if not all, of their real and personal property.
To further explain is to discuss “exemptions,” which are chosen by the legislature of the state where the bankruptcy case is filed. In most, if not all, cases that are filed by the MLG, this is the District of Utah.
While exemptions are important in both chapter 7 and chapter 13 bankruptcy cases, they are often more valuable in chapter 7 cases where debtors are “liquidating” and gaining a fresh start.
Why? In a chapter 7 case, exemptions determine how much property a debtor may actually keep, whereas, in a chapter 13 case, exemptions generally help lower Chapter 13 plan payments to unsecured creditors. Both are important, but the distinction speaks for itself.
Once a bankruptcy case is filed, a portion of the debtor’s assets (real and personal property) become the property of the debtor’s “bankruptcy estate.” Any property in this “estate” may be taken and sold by the Chapter 7 Trustee, with the proceeds used to pay unsecured creditors.
Exemptions exempt or exclude property from this bankruptcy estate.
The purpose of exemptions, found in both federal and Utah state law, is to keep certain necessary, if not essential, types of property from the reach of creditors. Without these types of property, debtors cannot maintain a minimum standard of living. If debtors are unable to do this, it is unreasonable to expect them to have the ability to gain a fresh start.
Exemptions typically cover basic necessary items. For example, in Utah, there is an exemption for some portion of the debtor’s equity in a home. In Utah, this is ($30,000), provided that the home is used as a “primary personal residence.” If not, the exemption is limited to $5,000. Keep in mind that there are usually no exemptions for luxury items like boats, jewelry, or a valuable doll collection. Understandably, these are typically not considered necessary possessions for everyday living and a fresh start.
It’s not difficult to understand why prospective bankruptcy debtors want to know what property they may keep in a bankruptcy case. When a Chapter 7 bankruptcy case is filed, this is considered a “liquidation” of the debtor’s assets under federal bankruptcy law. A Chapter 7 bankruptcy trustee may not liquidate or sell any of a debtor’s assets that are exempt to pay his or her creditors.
Theron Morrison cares about protecting your rights. Talk to the Morrison Law Group about your Chapter 7 or Chapter 13 bankruptcy options. Call 801.456.9933 today to schedule a FREE consultation. We are Utah’s only statewide bankruptcy law firm and have locations in Ogden, Logan, Sandy, and St. George to serve the residents of the counties of Weber, Cache, Salt Lake, Utah, Morgan, Davis, Washington, and surrounding areas.