What Is A No Asset Bankruptcy Case?

by Susanne Robicsek, North Carolina Bankruptcy Attorney

February 13, 2013

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If all the assets owned are within the allowance of exempt property, then the case is determined to be a no asset case.

  • In a no asset case, in exchange for giving up “nothing”, the debtor is able to walk away from the debts she can’t pay.

That may not sound fair to some people, however banks and lenders are fully aware of the collection laws and the bankruptcy laws.   The banks don’t go into it blindly and they certainly know the risks.

  • If banks lend money to people with sufficient collateral to back up the loan, they should always be paid back.  

Unsecured loans like credit cards are much riskier.  If banks lend money to people without requiring that the borrower have property to back it up, they might not be paid back.

In my article When Chapter 7 is a Good Option, I discussed when it makes sense to file Chapter 7 bankruptcy.  I explained a little bit about what property people keep when they file for bankruptcy, and what the exemption laws are that protect assets from creditors.

As a bankruptcy lawyer in North Carolina, one of the first things I consider in helping my clients decide if Chapter 7 or  Chapter 13 bankruptcy will help them is whether or not they have a no asset case, or a case with assets.

If the borrower isn’t able to repay with ongoing earnings and there is no collateral to use to repay the debt, what choice do they have?  Most bankruptcy debtors simply have no other recourse.

Borrowers who have a lot of property don’t get to keep it all, but people of modest means may get to keep everything.

        Why do banks make risky loans if people without assets

can just walk away by filing for bankruptcy?

That is an easy answer:   Money.

The profits from the higher interest paid for the riskier loans must certainly make up for any losses.  If they didn’t, bankers couldn’t make the kind of profits they do and I doubt that they would continue lending that way.

Any non-exempt property is given to the court trustee to sell and is distributed as far as it will go in pro-rata shares to the creditors.   So long as the property that will be sold is not needed by the debtor, or isn’t something of personal significance or sentimental worth, this could be a good solution to settle debts that can’t be paid off once and for all for far less than full payment.

 No asset Chapter 7 cases are often over fairly quickly.

Chapter 7 bankruptcy is fairly quick in cases that are well prepared, present no problems, and have no assets.  The Discharge is often issued within 4-6 months from filing.

The Discharge isn’t the end of the case, although it does mean that the debts are no longer personally owed by the filing debtor.

Cases stay open as long as there are assets the Trustee needs to deal with, or investigate.

A Final Decree must be also entered, which is done when the Trustee has either determined that there are no assets to pay creditors, or all the non-exempt property has been dealt with and distributed.

If there are no assets for the  Trustee to sell, the case may also be closed with a  Final Decree at the same time or shortly afterwards.

Complicated cases, cases with assets, or unresolved issues can  cause the proceeding to take more time, and tie up the debtor or the debtor’s assets in court for months or even years.

No asset Chapter 13 cases simply mean that the amount paid to creditors isn’t determined by the value of non-exempt assets.  No asset 13 case plan payments are calculated based upon either the debtor’s ability to pay, or to pay for secured or priority debts.

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Concentrating in Consumer Bankruptcy Law since 1988; Wake Forest Law School JD 1987 Law Office of Susanne M. Robicsek since 1993, Law Clerk to Judge Rufus Reynolds, US Bankruptcy Judge for Middle District of NC; Burns Price & Arneke, PA, David Badger and Associates, PA.

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Last modified: February 14, 2013