ABC's of Bankruptcy

Posted By Tom Hensel || 6-Apr-2012

A is for "Assets".

In a Chapter 7 or Chapter 13 bankruptcy proceeding (or any other type of bankruptcy proceeding for that matter) it is necessary for you to disclose all of your assets. What constitutes an asset? Anything, in any form, that you own. This includes tangible items such as real estate, cars, jewelry, and bank accounts as well intangible assets, such as the right to sue someone, or the right to receive a tax refund or a bonus. I cannot stress enough how important it is to disclose all of your assets to your bankruptcy attorney at your initial consultation. In bankruptcy, disclosure is the name of the game. Failing to disclose assets can lead to harsh consequences - including loss of the asset, denial of discharge or even worse - being charged with bankruptcy fraud. Once a bankruptcy petition is filed, all of your assets constitute what is called your 'bankruptcy estate'.

Once you've properly scheduled your assets, it's time for your attorney to determine what can be 'exempted' from your 'bankruptcy estate'.

In a Chapter 7 proceeding, you will get to keep all of your assets that are properly exempted from the bankruptcy estate. Whatever cannot be exempted becomes fair game for the Trustee to liquidate on behalf of your unsecured creditors. Fortunately for Chapter 7 filers, he bankruptcy code is pretty generous when it comes to exemptions. It is very likely that all of your assets will be exempt. If you have an asset that is not exempt and you still want to keep it - you may need to consider Chapter 13 instead. Your attorney will be able to advise you of your options.

In a Chapter 13 proceeding, your non-exempt assets will not be liquidated. Instead you will likely need to pay a defined minimum amount of money to your unsecured creditors. This amount will be determined by your hypothetical liquidation analysis.

A common question that comes up at a consultation is - 'if I'm going to file bankruptcy, can't I just transfer this asset out of my name?'. Generally, the answer here is an emphatic 'NO'. Transferring an asset just prior to a bankruptcy proceeding can also lead to an undesired outcome. In certain circumstances a Trustee can undo a transfer, and bring the asset back into the estate and liquidate it. If you're thinking you may need to file bankruptcy, definitely consult with anattorney before you transfer assets - otherwise, you could end up shooting yourself in the foot.

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