Can the Bankruptcy Trustee take my stuff, and what does he do with it? (Part 1)

If I can identify any possessions that are at risk, I want you to fully understand that before we file your case.  There may be ways of working around that in order to allow you to keep the asset.  Or it may be worth it to you to pay the trustee an amount to satisfy the bankruptcy estate’s interest in the asset, and in that way to keep it.  Occasionally, it may be most advantageous to you just to surrender the item.  This is a broad and complicated topic, and I cannot completely address it in this blog.  This is written to give you some basic guidelines on the subject, and hopefully to address your concerns.

As you may know, Chapter 7 is the liquidation chapter of bankruptcy.  The trustee will take your non-exempt assets, convert them into cash, and disburse the proceeds to your creditors who file proof of their claims.  What does “non-exempt” mean?  There are laws in Ohio that provide you with protections or “exemptions” in various kinds of assets.  [If you’re interested, the major statute is codified at O.R.C. § 2329.66]  Many of the exemptions protect you up to a certain amount of equity in an asset.  For example, you are currently entitled up to $400 in cash on hand and bank accounts, as determined on the date of the bankruptcy filing.  If you are married and it’s a joint account, your spouse is entitled to an additional $400.  The amount in your account over and above $400 ($800 if it’s a joint account with your spouse), could become the property of the bankruptcy estate.

A better example for our purposes here, and the one that I would discuss early on in my meeting with you, would be in regard to your vehicle.  This is the asset that seems to cause the most problems in bankruptcies, because many people think they can guarantee keeping the vehicle during a bankruptcy by paying it off before filing.  That’s when the problem starts!  Ohio law currently allows you to keep up to $3225 interest in one motor vehicle titled in your name.  (Again, your spouse is entitled to the same amount).  If the fair market value of the vehicle is $10,000, and you have no debt on it, there is potentially $6775 at risk in the bankruptcy estate.  However, if you have a car loan with a balance of, say, $8000, there is nothing for the trustee to get because the loan protected $8000 of the value and the exemption covered you for the rest of the value of the vehicle.

Without that car loan, again, we have $6775 worth of equity that’s non-exempt.  How are we going to deal with that?  First of all, you have a miscellaneous exemption of $1075 available that you can apply to whatever asset(s) you wish.  [Again, your spouse has a like amount available.]  Deducting the miscellaneous exemption in this example would leave $5700 still unprotected.  What can you do?  The three major options you have are:  1.) You can pay the $5700 into the trustee and keep the car (to some extent, this amount may be negotiable).  This is only a viable option if you have a considerable amount of debt, so that paying the $5700 into the bankruptcy estate is insignificant in relation to the amount you are looking to discharge in the bankruptcy.  2) You can surrender the car to the trustee, and when he sells it, you are entitled to the amount of the exemptions:  $3225 + $1075 = $4300.  You can then purchase a new car with that down payment.  The only problem might be what you’re going to drive from the time the trustee takes the car until he sells it and sends your exemptions to you.   3)  You can file under chapter 13, which would allow you to pay the $5700 into the court over a period of 36 – 60 months.  My best advice would be that if you presently have a car loan, leave it on there when you file!  It’s protecting the car from becoming an asset of the estate.

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About Barbara Horwitz

Barbara Horwitz is an experienced bankruptcy attorney helping people get past financial difficulties. She believes in creating a relationship with clients and is dedicated to making the bankruptcy process as easy and stress-free for clients.

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