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Uncovering Non-exempt Property in Bankruptcy

In most states in the United States, bankruptcy filers are allowed to exempt a certain amount of their assets from being distributed to creditors and debtors. In some cases, if the filer has no property that he or she is allowed to exempt, the Bankruptcy Code allows for him or her to select non-exempt property instead. 

Understanding what non-exempt property is can help you determine how beneficial it would be for you to transform your non-exempt assets to exempt property. This article explains how non-exempt property works in a personal bankruptcy such as Chapter 7 or Chapter 13. Our reliable bankruptcy law firm in Rockville can help you with your journey to a fresh start. 


Definition of Property

You are the owner of all you own. That is, even if your belongings are worthless, they are still “assets.” This is not to say that the trustee will liquidate your whole estate.

The trustee may sell only non-exempt assets. And only if their value is sufficient to cover your unsecured creditor’s debt.


Three types of assets

Personal, physical (or real estate), and intangible property are the three property types.


Personal property includes all of your “stuff.”

A personal asset is defined as everything that is mobile or touchable that you own. This includes the large dresser you are unable to move on your own. Included are automobiles, furniture, clothing, and jewelry.


Real property is defined as land or land-based property, such as a house.

Mobile homes are often categorized as personal property due to their mobility, while many timeshares are designated as real property by state law. 


Property that is not tangible.

The phrase “intangible” refers to anything that cannot be touched physically. This property type covers, but is not limited to, your retirement account, life insurance policy, tax return, and cash in your bank account.


These three types of assets are included in your bankruptcy estate.


What is non-exempt property?

The term “non-exempt property” is used in Chapter 7 bankruptcy proceedings to refer to a debtor’s estate property that does not qualify for a statutory exemption. A debtor’s property is non-exempt “unless and until the debtor claims an exemption for certain property, at which point the property is only exempt up to the amount claimed or authorized; exemptions do not function automatically.” 

The trustee may seize and liquidate the non-exempt property for the benefit of creditors. Additionally, creditors may confiscate such property in the case of a judgment against the debtor.

Suppose the property is exempted in a Chapter 7 process due to the debtor’s claim of exemption. In that case, the property is “removed from the estate for the benefit of the debtor”, and the “Chapter 7 trustee” is prohibited from liquidating or distributing to creditors with permitted claims.

The following are examples of property that a Chapter 7 debtor is often required to surrender (“non-exempt” property) and property that the debtor is typically permitted to retain (“exempt” property).


Non-Exempt Property

Typically, the debtor is required to give up the following:

  • expensive musical instruments.
  • Stamps, coins, and other collectibles
  • Heirlooms
  • Cash, bank accounts, stocks, bonds, and other assets are all investments.
  • A second automobile or vehicle
  • A second house or vacation residence


Exempt Property

Exempt property (things that a debtor may typically retain) includes the following:

  • Vehicles, up to a certain value
  • Reasonably essential clothing
  • Household products and furnishings that are reasonably essential
  • Appliances for the home
  • Up to a specified quantity in jewelry
  • Pensions
  • A percentage of the debtor’s equity in his or her house 
  • There are tools necessary for the debtor’s trade or profession, up to a specific amount.
  • Unpaid but earned wages
  • Public benefits accrued in a bank account include public assistance (welfare), social security, and unemployment compensation.
  • Compensation for personal injury


Non-Exempt Assets and Bankruptcy under Chapter 13

As long as unsecured creditors get the value of the non-exempt property under the Chapter 13 repayment plan, the filer retains all non-exempt property.


Under Chapter 7 bankruptcy, what happens to the non-exempt property?

When you file this chapter of bankruptcy, the bankruptcy trustee—the court-appointed person in charge of your case—will liquidate your non-exempt property to benefit your creditors. The trustee will apply the sale profits to your debts in the sequence specified by bankruptcy law. 

Priority debts, such as domestic support responsibilities (child or spousal support) or tax debt, will be paid first. If you do not have any priority debt, or if funds remain after paying your priority debt in full, the trustee will settle any non-priority unsecured obligations, such as credit card balances, personal loans, and utility payments.


Under a Chapter 13 bankruptcy, what happens to the non-exempt property?

In a chapter 13 bankruptcy filing, the trustee will not sell your non-exempt property. Rather than that, you’ll pay your unsecured creditors (creditors whose debt is not secured by security) a sum equivalent to the value of the non-exempt property.


If you are facing bankruptcy and are anxious about non-exempt assets, consult a bankruptcy attorney in Rockville

Bankruptcy is a last resort and a serious matter. Trying to deal with the debt problems on your own can be stressful and overwhelming. You may feel that you don’t know where or how to start. We want to help you find solutions that work for you and your family.

At Kurkland Law Group, our bankruptcy attorneys in Rockville provide compassionate guidance throughout the entire process.

We have experience in helping people file for bankruptcy under Chapter 7 or Chapter 13. We can help you get rid of credit card debt and other loans so you can start afresh with a clean slate.

Our bankruptcy attorneys are knowledgeable and competent in all aspects of bankruptcy law. They will work with you to develop a plan that best suits your needs and goals. We fully understand that filing for bankruptcy can be an overwhelming decision, but our goal is to make the petition as simple as possible for you. Our firm offers free initial consultations; don’t hesitate to contact or competent bankruptcy lawyers today!

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