In a Chapter 7 case, debtors must list all their assets on their bankruptcy forms. Debtors must also indicate all the exemptions (protections) that apply to their assets, both real and personal property.
Assets include all interests of the debtor, both legal and equitable. Some examples of assets include houses, condos, vehicles, timeshares, bank accounts, retirement accounts, income that has been earned but not yet received, and even claims against others that have not been collected or may be disputed.
If a debtor files in California, and has lived in California for two full years prior to filing, the California Code of Civil Procedure has two possible exemption statutes that the debtor may use to protect assets. The debtor must choose one or the other, depending on which is more advantageous for the assets they have.
If the debtor applies all the exemptions available, but some assets remain unprotected, the first decision is whether to file right away. It may be better for the debtor to delay the filing if the assets will be decreasing in value in the near future.
If the bankruptcy must be filed quickly due to an impending foreclosure, lawsuit, or other reason, and there are unprotected assets, the Chapter 7 Trustee can open an estate to collect the non-exempt assets and distribute the collected funds to the creditors as required by the bankruptcy code.
The Trustee does not always open an estate and take assets simply because the assets are not fully protected. In some cases, the amount of the unprotected assets is not sufficient to justify a distribution due to the costs the Trustee will incur when opening the estate. Another issue for the Trustee is whether the assets that the debtor chooses not to protect are worth selling. Some assets are difficult to liquidate and the time or cost of selling the assets may dissuade the Trustee from opening an estate.
When the Trustee opens an estate, he/she will demand the non-exempt assets from the debtor. After that, the Trustee handles the remainder of the process. They will collect the funds and distribute them to creditors based on allowed claims filed by the creditors. The only cost to the debtor is the loss of the asset. Generally, liquidation does not affect the discharge.
For more information or a consultation, please call 661-210-5657, or e-mail mjf4bk@ca.rr.com.