Law Office of Rick Morin, PC

There are two main types of Chapter 7 bankruptcies: asset and no-asset cases. There is a huge difference between the two. Read on to learn more about a bankruptcy asset case.

Legally speaking, a Chapter 7 Bankruptcy is known as a “liquidation” bankruptcy. The bankruptcy court is empowered to liquidate your assets to provide a distribution of funds to your creditors. In more simple terms, your assets can be sold and used to pay off some of your debts in a Chapter 7 bankruptcy. Any debt that remains at the end of your case is discharged and you get a fresh start.

Over 99% of the Chapter 7 bankruptcies that I file are “no asset” bankruptcies. This means that there are no assets for the Chapter 7 Trustee to liquidate. In these cases, no property is taken from the debtor, and creditors receive no distribution of money from the court. Nearly all debts are wiped out and everyone moves on. Simple!

Occasionally a debtor will have too much property to protect (which us lawyers call “exempt”). In this case, the debtor must turn over property to the Trustee. The Trustee then sells the property at an auction, takes a commission, and distributes the rest to creditors.

The thing to remember is that Chapter 7 Trustees earn a commission on any property that they can recover. This incentivizes the Trustees to aggressively root out any hidden assets for the benefit of a debtor’s creditors. A Trustee that can recover property in a case can therefore enhancer his or her own bottom line.

Why would anyone still want to file bankruptcy is they are going to lose property to the Court? Great question! Maybe a debtor will not be able to protect their tax refund, and let’s say it would have been $2,000 this year. But remember, the debtor is discharging their unsecured debt. If they are getting rid of $50,000 in credit cards, this is a good deal! Another favorite asset for Chapter 7 Trustees is a car! Cars are easy to liquidate at auction, so Trustees always enjoy getting their hands on vehicles.

A good Chapter 7 attorney will be able to advise a client before filing whether any funds or property will need to be turned over to the Trustee. This is an important part of deciding whether Chapter 7 or Chapter 13 bankruptcy is appropriate for the client.

Asset Chapter 7 cases can be very complicated. If you need help deciding whether to file for bankruptcy, please call my office and I can walk you through the process. My phone number is (916) 333-222.