Bankruptcy, exemptions and a fresh start

14 May Bankruptcy, exemptions and a fresh start

My clients lately are so down on themselves that they insist on worrying that the bankruptcy trustee will strip them of everything, their home, their car, their consulting practice. Not so, I repeat, and repeat.

FIrst of all, the bankruptcy trustee is only interested in assets that have net equity. So, the trustee is not going to “seize” your house where you owe more than it’s worth. [The level of the client’s fears are, I think, reflected in the choice of a word like “seize” with its connotations of violence.] The house has no equity, much less enough extra value to pay for the costs of sale and the trustee’s commission to sell it.

Likewise, the car. If there is no equity, “seizing” it doesn’t benefit creditors. And bankruptcy trustees have no interest in taking something from a debtor if it doesn’t result in money for the creditors.

Most small personal service businesses have no value beyond the efforts of the owner. If the owner stops working in it, there is nothing of value that a buyer would pay for, in most circumstances. The trustee can’t make the debtor continue to operate the business to preserve going concern value. There is simply nothing of realizable value there.

And then there is the matter of exemptions, law that carves out kinds of assets and values of things that the debtor gets to keep to facilitate his fresh start after bankruptcy. While they range in generosity, each state has exemptions that preserve some assets for the debtor.

So, relax. The bankruptcy trustee is not going to take everything you own just because you file bankruptcy. I promise.

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Cathy Moran, Esq.

I'm a certified specialist in bankruptcy law (California State Bar Board of Legal Specialization) practicing in the San Francisco Bay Area for more than 30 years. In addition to practicing bankruptcy law, I train new practitioners at Bankruptcy Mastery.

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