"Property of the Estate" in Chapter 7 Bankruptcy

 Posted on May 24, 2017 in Chapter 7

To find out if you can keep everything you own in a Chapter 7 case, the first step is finding out what’s in your bankruptcy estate.

In most consumer Chapter 7 bankruptcy cases, the person filing the case (the debtor”) gets to keep everything they own. But getting to that point is a process. The first step in that process is understanding “property of the estate.” (The later step is to determine whether all of the property of your estate is protected, or “exempt.”)

An “Estate” in Bankruptcy

We normally think of an estate as the property owned by a person at the time he or she dies. But more broadly it’s “all the property and money that belongs to someone.” In bankruptcy it has an even broader meaning, including a number of categories of property.

When you file a Chapter 7 case, doing so automatically creates an estate. That estate includes a different categories of property. Today we’ll focus on what for most people is the main category. In most simple cases it is the only category of property involved in your Chapter 7 case.

“All Legal and Equitable Interests of the Debtor”

This first category iincludes “all legal or equitable interests of the debtor in property as of the commencement of the case.” This essentially means everything you own at the moment you file your case. See Section 541(a)(1) of the U.S. Bankruptcy Code.

Property “Wherever Located and by Whomever Held”

Whether or not you have possession of something, or where it happens to be located, do not matter. See Section 541(a) of the Bankruptcy Code.

If it’s legally yours, then even if it’s not in your possession when you file your Chapter 7 case, it becomes property of the estate.

If it is not legally yours although it’s in your possession, it does not become property of your Chapter 7 estate.

Here are a couple examples. If you borrow your sister’s rifle for a hunting trip and just haven’t returned it at the point you file your case, that’s NOT part of the property of the estate. However, if your dad gifts you his rifle, which you keep in his gun safe away from your kids, that rifle IS property of the estate.

At “the Commencement of the Case”

Timing is crucial and precise.

The “commencement of a case... creates an estate. Such estate is comprised of... all... interests of the debtor in property as of the commencement of the case.”

This means that the property of the estate excludes something you owned the day before filing but no longer do. It means that the property of the estate excludes something you didn’t own until the day after filing.

For example, if, on the day before filing bankruptcy, you spend $1,000 on food and a vehicle repair, that $1,000 is not property of your bankruptcy estate. Or if, on the day after you file, a relative gives you $500 to buy school clothes for your kids, that $500 is not property of your estate.

Important Timing Exceptions to the “Commencement of a Case”

There are exceptions. Property of the estate can sometimes include certain possessions and money you owned before filing bankruptcy. It can also include possessions and money you got after filing. We’ll get into these in our next few blog posts.