Posted on June 14, 2017 in Chapter 7

Just because you own something that isn’t exempt does not necessarily mean that your Chapter 7 trustee will liquidate it. Maybe not.

Our last blog post was about the most straightforward kind of no asset” Chapter 7 case. That’s when it’s clear that everything you own is “exempt”—fully protected. The property and exemption schedules that you and your bankruptcy lawyer prepare and file at court show this. Your trustee asks a few confirming questions at the “meeting of creditors” and announces that your case is a “no asset” one. That means that there’s nothing you own that the trustee wants to liquidate and pay its proceeds to your creditors.

But if you do own something that isn’t exempt. What happens then?

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 Posted on June 12, 2017 in Chapter 7

Most individual consumer Chapter 7 cases are “no asset” ones. This means that the Chapter 7 trustee doesn’t liquidate any debtor assets.

Chapter 7 Is a Liquidation Form of Bankruptcy

When think “liquidation,” this is what you may come to mind. A business decides to close down and files a Chapter 7 “liquidation” bankruptcy. A bankruptcy trustee gathers and sells all of the business’ assets and pays its creditors as much as it can out of the proceeds.

When you as an individual file under Chapter 7 it’s still a so-called “liquidation” bankruptcy, but it’s usually completely different. Nothing of yours is liquated by your Chapter 7 trustee. The reason is that, unlike a corporation, you are entitled to many property exemptions. These are provisions in the law which protect what you own from your creditors. They protect your property from your Chapter 7 trustee, who acts on behalf of your creditors. Usually everything you own fits within the exemptions that apply to you, protecting everything.

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 Posted on June 09, 2017 in Asset Protection

Assets acquired after filing under Chapter 7, such as wages, can’t be reached by the trustee. But watch out for proceeds, rents and profits.

After-Acquired Property Is USUALLY Not Property of the Estate

Your filing of a Chapter 7 “straight bankruptcy” case creates a bright red line of timing. What you own at that moment of filing is potentially accessible to the Chapter 7 trustee to pay your creditors. It’s “property of the bankruptcy estate.” What you acquire later is not.

In most consumer Chapter 7 cases the trustee actually does not take and liquidate anything out of the “bankruptcy estate.” That’s because in most such cases everything in the estate is exempt—covered by the available property exemptions.

But it’s still important to know what is included in the bankruptcy estate and what is not. That’s especially true if you don’t realize that something is, and then you don’t have an exemption that protects it. As a result something that you expected to be able to keep could be taken from you.

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 Posted on June 07, 2017 in Bankruptcy And Divorce

The 180-day rule also applies to marital property division, whether by agreement or court decree.

Our last half-dozen blog posts have been about what’s in the “property of the estate” of your Chapter 7 case. This matters because you must protect whatever is “property of the estate” by a property exemption or you risk losing it.

Generally, everything you own at the moment you file your Chapter 7 case is “property of the estate.” The date of filing is usually crucial in determining what is and what is not. But as we’ve seen in the last three blog posts, if you come into property a few very special ways during the 180 days AFTER filing, that property is also “property of the estate.” We’ve covered property received through an inheritance, life insurance proceeds, and other death benefits. The idea is that if you come into money or property that soon after filing bankruptcy, the creditors have rights to it.

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 Posted on June 05, 2017 in Asset Protection

The 180-day rule applicable to life insurance proceeds also applies to death benefits overall. Death benefits may also often be exempt.

Our last two blog posts have been about inheritances and life insurance proceeds. Death benefits work the same in a Chapter 7 “straight bankruptcy” case. That is:

• depending on the timing of the death benefit, it may be property of your Chapter 7 estate; and
• if it IS property of the estate, it may be exempt.

Just like inheritances and life insurance proceeds:

• if the death benefit is NOT property of the Chapter 7 estate, it’s yours to do with whatever you want;
• if the death benefit IS property of the estate and is NOT exempt, your Chapter 7 trustee can take it from you and use those funds to pay your creditors; and
• if the death benefit IS property of the estate but IS also exempt, it’s protected from the trustee, and is yours to do with whatever you want.

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 Posted on June 02, 2017 in Asset Protection

The 180-day rule applies to life insurance proceeds in a Chapter 7 case. But life insurance proceeds are often exempt, or protected.

Last time, we explained the 180-day rule about inheritances. If within 180 days after you file bankruptcy you “acquire or become entitled to acquire” an inheritance, then the property being inherited is “property of your bankruptcy estate.” It’s counted as if it was your property at the time you filed, even though it wasn’t. (See Section 541(a)(5)(A) of the Bankruptcy Code.)

That means to whatever extent the inherited property isn’t covered by a property exemption, or protected some other way, the Chapter 7 trustee can take and liquidate it to pay your creditors.

That 180-day rule also applies to life insurance proceeds, our topic today. (See Section 541(a)(5)(C) of the Bankruptcy Code.)

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 Posted on May 31, 2017 in Asset Protection

If you are expecting an inheritance, or even if you are not, the special rules about them are worth your attention to prevent bad surprises.

Most people thinking about filing bankruptcy aren’t expecting an inheritance.

But if you are, there are some very important timing rules that can affect whether and when you’ll file bankruptcy.

And even if you are not expecting an inheritance, these rules are helpful to know in case you unexpectedly do receive one.

Fixation on Property Owned at the Moment of Filing Bankruptcy

When we introduced “property of the estate” a week ago we emphasized that it’s comprised of everything you own at the “commencement of the case.”

The timing is crucial. Usually any property you acquire in the days and months after filing a Chapter 7 case is not “property of the estate.” It doesn’t fall within the jurisdiction of the bankruptcy court or the reach of the liquidating Chapter 7 trustee. You don’t have to protect that property with exemptions. It’s simply yours.

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 Posted on May 29, 2017 in Asset Protection

If you are the beneficiary in a spendthrift trust, most likely a bankruptcy trustee can’t touch whatever property is in that trust.

Power of Attorney vs. Spendthrift Trust

Our last blog post focused on your rights under a power of attorney over someone else’s property. A conventional power of attorney commonly requires you to use that property only for another person’s benefit. If so, then your legal control over that property isn’t enough to make that property yours for bankruptcy purposes. So if you file a Chapter 7 case the bankruptcy trustee has no power of that property. It is not included in the property of your bankruptcy estate. (Section 541(b)(1) of the U.S. Bankruptcy Code.)

A power of attorney can be created for a million reasons. But the most common probably involves an elderly parent giving someone else, often their adult child, the power to use that parent’s property to pay the parent’s expenses when he or she no longer has the mental capacity to do so. The parent’s property does not become the adult child’s property because the child has only limited control over it.

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 Posted on May 26, 2017 in Bankruptcy

If you have a power of attorney over someone’s assets, or any similar power, those assets are not affected by your bankruptcy case.

“Property of the Estate”

Last time we emphasized that when you file a bankruptcy case everything you own becomes “property of the estate.” That’s what the bankruptcy trustee has jurisdiction over.

Once you know what property of yours the trustee has jurisdiction over, then you can see whether all that property all fits within your available “property exemptions.” Most of the time all of your “property of the estate” does fit within your exemptions. But the first step is knowing what’s included in the “property of the estate.”

Includes Just about Everything

Courts have consistently held that the scope of that term is very broad. “Property of the estate” includes “all legal and equitable interests of the debtor in property,” “wherever located and by whomever held.” See Section 541(a)(1) of the U.S. Bankruptcy Code.

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 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.

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