The law that defines what you can keep despite filing bankruptcy is found in law books, you’d think. There are two alternate sets of California exemptions in the Code of Civil Procedure. The state law exemptions, for instance, permit the debtor to keep $2550 in equity in vehicles, while the California bankruptcy exemptions allow $3300.
But the unwritten exemption is added to those numbers: that “exemption” is the cost to the trustee of administering that asset in order to turn it into cash that he can distribute to creditors. If your car was worth, say, $4300, a thousand dollars more than the exemption, to realize that non exempt value, the trustee has to pick up the car and arrange for its sale, and then pay you the amount of your exemption. Say it costs 10% of an asset’s value to arrange the sale.
Then, the trustee has his expenses of administration to pay before he pays creditors. The trustee gets 25% of the first $5000 she handles. So the $1000 of non exempt equity shrinks by the trustee’s commission. In our example, then $1000 less $430 costs of sale, less $250 trustee commission. The trustee now holds $320.
In order to distribute that amount, the trustee has to examine the claims filed in the case to determine which creditors should share in the magnificent sum of $320.
The moral of the story is that trustees are instructed only to administer assets where there is a meaningful benefit to creditors. If there is not such a benefit, the asset is abandoned to the debtor, and the debtor keeps a car with value greater than the written exemption.
{ 2 trackbacks }
Comments on this entry are closed.