After your decision to file for Chapter 7 bankruptcy, some of your assets – the properties you own – may be sold to pay off your debts. These assets are referred to as non-exempt assets.
Definition and Examples of Non-Exempt Assets
Non-exempt assets are those that can be sold by the trustee appointed to your case by the bankruptcy court. In Chapter 7 bankruptcy, the proceeds from the sale of these assets are used to pay off some or all of your debts.
The following items are generally considered non-exempt assets and can be used to pay off your debts:
- A home or other residential property that is not your primary residence
- A late-model car in which you have equity
- Valuable musical instruments that are not necessary for your profession
- A valuable stamp or coin collection
- Investments not held in retirement accounts
- Valuable artwork
- Expensive clothing
- Jewelry
Note: If you do not have any non-exempt assets, your case is referred to as a “no-asset case.” There are no properties to be sold by the bankruptcy court, and your creditors will not receive any payments as a result of your bankruptcy case.
How Do Non-Exempt Assets Work in Bankruptcy?
State and federal laws determine which assets are exempt and which are non-exempt. The laws can vary significantly, to the extent that some states allow you to choose whether to use the state or federal exemption system in your bankruptcy case. You might choose the federal exemption system, for example, because it allows you to keep some properties that the state exemption system does not.
Nineteen states – Alaska, Arkansas, Connecticut, Hawaii, Kentucky, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Texas, Vermont, Washington, and Wisconsin – allow you to choose between the two systems.
Under federal law, you can protect exempt assets up to the following amounts for these specific items:
- $25,150 of equity in your primary residence
- $4,000 for your vehicle
- $1,700 for jewelry
- $625 for each individual household item, including furniture, appliances, and clothing, totaling up to $13,400
- $2,525 for tools and essential books for work
- Health aids (with no specified limit)
- $13,400 of the value of a loan or accrued interest in a life insurance policy
These amounts apply to cases filed on or after April 1, 2019.
Note: A bankruptcy attorney can review the details of your case and help you determine which exemption system to use to optimally protect your assets if you live in a place that allows you that choice.
If you have non-exempt assets in your bankruptcy case, your creditors will file a claim against the assets for a distribution from the bankruptcy estate. The trustee will take the assets, sell them, and distribute the proceeds of the sale to creditors who have filed claims. The trustee may decide not to sell some non-exempt assets if they are not of significant value or if they are difficult to sell.
You are expected to be honest in disclosing your assets. Trustees do not often visit homes, but they can obtain a court order to do so if they have any reason to believe you are hiding assets.
Alternatives to Filing for Chapter 7 Bankruptcy
You may consider selling your assets yourself and using the money to pay off or settle your debts. This works more in your favor, but it allows you to avoid having a bankruptcy on your credit report.
However, note that if you attempt to sell assets so that you do not have to surrender them in bankruptcy and you file for bankruptcy later, it may affect your case. The court will analyze your intentions in selling the assets and make a determination as to whether you were attempting to hide assets or defraud the court. The trustee may recover the sold assets, seize some of your exempt property, or even deny the discharge of your debts.
Note:
Some types of debts, such as family support, child support, student loans, and various types of taxes, will not be discharged after Chapter 7 bankruptcy. Under certain circumstances, federal, state, and local income taxes, including penalties and interest, can be discharged.
Chapter 13 bankruptcy is reserved for those debtors who have a steady income and are able to make payments to their creditors over three to five years using all their available income. If you file for this type of bankruptcy, you will create a repayment plan with the help of a credit counselor. You must repay your creditors at least the value of your non-exempt assets, although those assets will not be liquidated.
Source: https://www.thebalancemoney.com/what-are-nonexempt-assets-in-a-bankruptcy-case-960066
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