Can I Keep My Non-Exempt Assets in Bankruptcy?

30 Sep Can I Keep My Non-Exempt Assets in Bankruptcy?

If you file a Chapter 7 Bankruptcy, the Chapter 7 trustee will determine if the items you own (your assets) are exempt.  To the extent that they are exempt, they are protected from the reach of the trustee and your creditors.  Exemptions are determined by the Federal Bankruptcy Law or the Exemption laws of your state.

In New York State, for example, you can exempt $50,000 of equity in your home, $2,400 in your vehicle, $600 in tools, and $2,500 in household goods.  If, say, your vehicle is worth $6,000 with nothing owed against it, then the Chapter 7 trustee can take the vehicle, sell it, give you your $2,400 exempt value, and use the rest to pay towards your creditors.

If you file Chapter 7 and want to keep an asset that is worth more than the applicable exemption, you usually can, if you offer to buy out the trustee’s interest.  So for the $6,000 car, with a $2,400 exemption, the trustee’s interest would be $3,600.  The trustee would want to get paid as close to that amount as possible, although if s/he took it to sell, s/he would have to transport it, store it, advertise it, pay a sales commission, and would net somewhat less than the $3,600.

So you might be able to keep it by offering the trustee less, say $2,500.  The trustee would then have to make a motion to the bankruptcy court to allow the sale for the amount you are offering.  The Court will usually hold a mini-auction in the courtroom.  The judge would announce “Is there anyone in the Courtroom interested in making an offer on this vehicle”.  Then, if there was anyone else there who wanted to bid, they could.  The highest bidder would win and upon payment would get the vehicle.

One other problem that may occur is that the trustee may not let you use the vehicle until well after the courtroom auction.  This is because the trustee is liable for the vehicle, and any vehicle related injury that might occur between the time you file the bankruptcy and the time of the auction.

On the other hand, if you filed a Chapter 13 bankruptcy, you would keep the car from day one as long as your chapter 13 plan provided to pay the unsecured creditors at least as much during the life of the plan as they would have received in a Chapter 7.  One of the major reasons many people file Chapter 13 is to keep their non-exempt assets.

Be sure that your bankruptcy lawyer is fully aware of what the exemptions are in your area, and familiar with the practices of your local trustees.

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Peter Orville is a bankruptcy lawyer in Binghamton, located in the Southern Tier of New York. He is a member and New York co-chair of the National Association of Consumer Bankruptcy Attorneys.
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