When you file for bankruptcy, you must disclose all your assets. All of these assets become part of the bankruptcy estate upon filing. You are allowed to keep certain types of property so you can start over after the bankruptcy is completed. The property you are allowed to keep is known as exempt property or exemptions.
Examples of Non-Exempt Assets
Assets that do not fall into any exemption category are presumed to be turned over to the Chapter 7 trustee for liquidation so that the cash generated can be distributed to creditors.
Too Expensive to Maintain
A collection of rare and old documents may cost more to maintain and preserve than what a Chapter 7 trustee could obtain from selling them if action is not taken quickly. However, this is unlikely to happen. Every sale in a bankruptcy case must be approved by the court after all parties have had a chance to object or propose an alternative plan. Therefore, the trustee considers a process that may take two or three months to complete. In the meantime, they bear the cost of maintaining the asset as part of the bankruptcy estate.
Takes Too Long to Sell
Restoring vintage items and selling them on eBay can be a profitable practice, but it may take a long time to find a buyer for any individual recovered item. If you have many of these items when you file for bankruptcy, the trustee is not going to wait six months for buyers to emerge, especially considering they are likely to sell the items at a significantly discounted price.
Difficult to Sell
Some assets are very personal to the debtor. For example, if you earn income from freelance writing and get most of your work through a personal website. Even if the site ranks well in search engine results and generates a lot of business, will it have significant value to a Chapter 7 trustee trying to sell it, especially considering that the work itself requires your services to make things happen?
Limited Value
You might be restoring a corroded old Corvette, valued at about $2,000. Although it is not exempt, the trustee is unlikely to touch it as it won’t generate enough cash. In fact, a $2,000 bank account is unlikely to attract much interest from the trustee. The trustee earns a commission based on what passes through the bankruptcy estate they are assigned to manage. For example, on the first $5,000, they take a maximum of 25%. If they sell the Corvette for $2,000, they will make $500, but the selling costs, let’s say $200, will come out of the remaining $1,500. That leaves $1,300 for creditors. Then, they will have to file claims from creditors, and may contest some of those claims if they find them to be insufficient. All of this for $500. Many trustees prefer to have access to liquid assets valued at around $5,000 before they become interested.
Source: https://www.thebalancemoney.com/the-fate-of-nonexempt-assets-in-a-chapter-7-case-316373
Leave a Reply