While many people think of bankruptcy as a last resort, filing for bankruptcy can be a smart move to make in certain situations. One type of bankruptcy that can be especially helpful is known as a “liquidation” or “assets sale” bankruptcy. This occurs when someone files for bankruptcy and then sells off any assets they have to pay back creditors.
Under Chapter 7 of the bankruptcy code, certain assets in bankruptcy are exempt from sale and can stay with the debtor. This means that not all assets are liquidated in a Chapter 7 bankruptcy.
How Does Bankruptcy Affect Assets?
Certain types of assets can be included in a bankruptcy estate and liquidated under Chapter 7. It is helpful to understand which assets may be at risk for you to make the best decisions for your financial future.
There are three types of assets in bankruptcy:
- Personal property. This is what’s considered material goods; examples include clothing, furniture, artwork, and vehicles.
- Real property. Real property includes land and improvements or buildings tied to lands, such as a house or barn.
- Intangible property. As their name suggests, intangible assets include property that isn’t physically material but has value. For example, child support, alimony, and retirement savings are intangible property.
Bankruptcy’s Exemptions And Nonexemptions
Bankruptcy proceedings can seem complicated and daunting, but understanding the process is crucial for anyone considering this option. One important thing to note is that not all assets are subject to liquidation in bankruptcy. Federal exemptions exclude certain assets from being sold, and many states have their unique exemptions as well. These exemptions can include clothing, tools needed for work or health-related purposes, and other assets.
It’s important to understand that exempt assets are protected under the Bankruptcy Code and cannot be sold for cash. nonexempt assets, on the other hand, are not protected and can be sold to repay creditors.
Is Everything Required To Be Listed?
Listing assets in bankruptcy are important to ensure that all asset types are accounted for. The process of filing for bankruptcy requires debtors to provide a list of their assets, also known as a schedule of assets, to the court. This ensures that all creditors are aware of the debtor’s assets and can make claims accordingly.
Different types of assets must be reported when filing for bankruptcy. This can include both secure and unsecured assets. Examples of some common assets that are seen in bankruptcy filings are:
- Business-related property
- Financial assets (e.g., investments or deposit accounts)
- Land or a primary or secondary home
- Personal and household items
- Property related to farming and commercial fishing
- Vehicles
- Any other property otherwise not stated
Debtors who wish to exempt certain assets in a bankruptcy estate must file a separate schedule listing those assets. The court relies on debtors to provide a complete and accurate schedule of all their assets so that the trustee can administer and liquidate the estate as needed. Only assets owned by the debtor at the time of filing are included in the bankruptcy estate and considered for liquidation.
In A Bankruptcy, What Happens If You Don’t List All Your Assets?
By signing your bankruptcy petition, you are swearing under penalty of perjury that all of the information and assets you have provided are accurate and truthful.
Failing to report assets during a bankruptcy case can result in having the bankruptcy petition denied or revoked. Additionally, omitting assets in bankruptcy – whether accidentally or intentionally – could be considered fraud, a criminal charge. Penalties for perjury include up to $250,000 in fines and 20 years in prison.
How Does A No-Asset Bankruptcy Work?
There are no assets that can be liquidated when someone files for Chapter 7 bankruptcy, also known as a no-asset bankruptcy case. This is the most common type of bankruptcy petition, according to the Administrative Office of the U.S. Courts.
The trustee files a “no asset” report with the court when there are no unprotected assets that can be sold. Unsecured creditors won’t receive distributions from the bankruptcy case because there are no assets to distribute.
The trustee may discover exempt assets during the bankruptcy process, which can be sold to repay creditors. Unsecured creditors are notified by the court and must file a proof of claim to receive their share of the proceeds.
Factors To Consider
When you file for bankruptcy, you’ll need to list all of your assets. But there are a few things you should know that could affect the value of your estate and the assets you’re able to claim as exempt.
- Each state has a unique asset exemption list. Different state governments have different lists of assets that are exempt from seizure during bankruptcy proceedings.
- State-exempt assets have a value limit. Different state governments have different rules about what assets are exempt from seizure during bankruptcy proceedings. For example, in the state of California, any jewelry owned by the debtor that is valued at $8,725 or less is exempt from seizure.
- Married couples can file individual or joint bankruptcy petitions. Filing for bankruptcy can be done individually or with one’s spouse. In either case, the non-filing spouse must also list their assets for the court to get an idea of the household’s financial situation.
- Secured debt can be reaffirmed. Debtors who reaffirm their secured debt are agreeing to continue making payments and be liable for the debt. This agreement is filed with the court, and the creditor agrees not to repossess the property as long as the debt account remains in good standing.
What’s Next?
Filing for bankruptcy can be a difficult and stressful process. One of the most important things you can do to help ensure a successful outcome is to disclose all of your assets, no matter how small or insignificant you may think they are.
To fill out the bankruptcy schedule forms, you’ll need information about each asset you own or have an interest in. This includes a description of assets, asset values, and the value of the portion owned. Different states have different tax exemption laws, so be sure to consult with a bankruptcy attorney to learn more about what applies in your case.