Chapter 7 bankruptcy is basically a liquidation procedure. The objective of Chapter 7 bankruptcy is to sell the debtor’s assets for a profit and then pay the debtor’s creditors with the proceeds. Within this process is the bankruptcy estate.
The moment you file bankruptcy, your bankruptcy estate is created and governed by federal law. All of your assets that will be taken and sold by the bankruptcy trustee for a profit to pay off your debts comprise the bankruptcy estate. Unless you are filing a no-asset bankruptcy, the bankruptcy estate is the equivalent of all of the property you are going to lose in your bankruptcy, so you should understand exactly which assets are considered part of it.
We all own assets, although some of us own more assets than others. Each piece of property typically comes with rights, and the bankruptcy estate becomes the owner, so to speak, of both the property and the right that comes with it. All of your property, whether tangible or intangible, equitable, vested, contingent, or legal, makes up the bankruptcy estate.
The Function of the Bankruptcy Estate
The bankruptcy estate serves two main functions:
Protection of assets. The automatic stay of Chapter 7 bankruptcy puts a stop to creditor actions, protecting assets that make up the estate.
Transparency of assets. Disclosures pertaining to assets are available for review to creditors and others who may take interest in the bankruptcy. If there are any discrepancies, this transparency provides creditors and other interested parties the ability to question them.
The combination of the two functions allows the bankruptcy trustee the time and space to examine, analyze, sell, and divide the proceeds from assets without creditors interfering.
What If Asset Ownership Is Split?
If you are the sole owner of an asset, the entire asset and all interest in it transfers to the bankruptcy estate. If you only own half of the asset, then your 50% of the asset transfers to the bankruptcy estate. This applies, no matter where the asset is located in the world.
Examples of Assets
If your name is listed as the only owner of your house and you are filing bankruptcy on your own, regardless of whether or not you are married or have kids, your home will transfer to the bankruptcy estate. If you and your spouse have a house and both of your names are on the deed, but you are filing bankruptcy on your own, half of the value of your home will be transferred to the bankruptcy estate. Your clothing, with the exception of clothing that is deemed necessary and basic, will be transferred to the bankruptcy estate.
If you sustained injuries and have yet to file a lawsuit, that claim can be converted to the bankruptcy estate. The trustee appointed to your Chapter 7 case can either settle or prosecute the case for the estate. If anyone owes you money, that money is also considered an asset and belongs to the bankruptcy estate. Whatever assets you believe you are entitled to will transfer to the bankruptcy estate.
What If I Do Not Want to Lose My Assets?
If you do not want to lose any of your assets, you should consider contacting a skilled bankruptcy attorney. Your assets might be exempt from the bankruptcy estate or you might want to consider filing a Chapter 13 bankruptcy instead of Chapter 7. A knowledgeable lawyer will be able to tell you the best route to take to keep your assets and straighten up your finances.
Are You Considering Filing For Bankruptcy?
If you feel bankruptcy is the best option for your financial situation you need to speak with an experienced bankruptcy lawyer as soon as possible. Please contact us online or call our office directly at 888.348.2616 to schedule your free consultation.