When Assets Exceed Exemptions in a Chapter 7

SOMF Asset Patterns

SOMF Asset Patterns (Photo credit: Wikipedia)

Assets Exceeding Exemption Status

In a Chapter 7 bankruptcy, often called liquidation, a US Bankruptcy Court trustee will take your non-exempt assets, liquidate them, and take the proceeds to pay off your unsecured creditors in a predetermined order.

Non-exempt assets are determined either by state of federal bankruptcy exemption laws. These laws list the various assets that are exempt from liquidation in a bankruptcy and the amounts relative to each asset. You will be allowed to keep any fully exempt asset.

When an asset value exceeds the amount of exemption status in a Chapter 7, the trustee can select to liquidate the asset, giving you the exemption amount while paying out the overage to your creditors. Trustees often select not to liquidate assets with an overage if the asset is not really worth liquidating. Most Chapter 7 cases are non asset cases, meaning there are no non-exempt assets to liquidate. These are the simplest types of bankruptcy to file.

The Buyout

In the Chapter 7 process, the trustee will give you the opportunity to buyout your non-exempt assets that he or she is likely to liquidate. The buyout is always figured on the fair market value of the asset being liquidated. Household items and personal belongings, for instance, are usually figured on garage sale prices. A large item like a house will be figured on comparative pricing from an appraisal. A car is normally figured using Kelley fair market value.

Depending on the local bankruptcy district rules, you may make a deal to make monthly payments to make your buyouts. The buyout allows the trustee a source for quick cash in order to pay him or herself and the unsecured creditors. If you cannot buyout your non-exempt assets, the trustee will proceed to liquidate the items and pay the creditors.

Other Bankruptcy Choices for Non-exempt Assets

If you do not or cannot buyout your non-exempt assets, you have other bankruptcy choices for keeping your assets. One of the advantages of a Chapter 13 bankruptcy is that you can keep all your assets while developing a pay back plan for your creditors over a 3 or 5 year time frame.

In order to qualify for a Chapter 13, you have to have a steady income. A Chapter 13 is often called a wage earner’s plan. The trustee will take a monthly payment from you based on your disposable monthly income and pay your unsecured creditors a percent up to a hundred percent for the duration of the plan. When the plan period is over, any unpaid unsecured debts will be discharged. During the plan, you will be required to keep current on your secured payments, unless you surrender them during the bankruptcy.

Making Wise Decisions in Protecting Your Assets

Probably one of the wisest decisions you can make when it comes to protecting your assets in bankruptcy is to solicit the hiring of a bankruptcy lawyer to help you determine what the best course of action is for your particular situation. Every circumstance is different and bankruptcy law is complicated.

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