Posted on: 18 July 2018
In chapter 7 bankruptcy, the assets of the applicant will be considered to pay back some or all of the debt owed to the creditors. Assets are classified as exempt and nonexempt. The applicant cannot keep most assets that are considered nonexempt.
Differences Between Nonexempt and Exempt Assets
Nonexempt assets will be valued and used to pay back creditors. However, there are exempt assets that will be excluded from evaluation. The applicant will be able to keep their exempt assets. If the applicant does not have any nonexempt assets, the case will be considered a no asset case. Some of the nonexempt assets may not be considered, because they may not hold any considerable value if sold.
Another reason that nonexempt assets may not be used to pay back creditors is that they may be too difficult to sell. Some states set limits on the minimum value of nonexempt assets. If the value of a nonexempt asset is below the minimum value set by the state laws, the trustee will not consider the asset for sale to repay creditors.
Federal and State Laws Regarding Nonexempt Assets
Applicants who try to transfer assets to relatives before filing for chapter 7 bankruptcy will likely create legal complications for themselves. Nonexempt and exempt assets will be subject to state law in addition to federal law. Some states will require that the applicant follow the state laws to categorize their assets while other states will provide the applicant with the option to select exemptions based on the state laws or the federal laws.
Different states may categorize nonexempt and exempt assets differently. During the bankruptcy process, creditors file claims toward the applicant's nonexempt assets. A trustee will be appointed to the case and will oversee it. The trustee will be entrusted with selling the applicant's nonexempt assets and using that money to pay back creditors.
Below there will be a general and simplified classification of what may be considered nonexempt and exempt assets in chapter 7 bankruptcy.
Nonexempt Assets in Chapter 7 Bankruptcy
A vehicle that has equity value may be considered as a nonexempt asset. Even if the vehicle has a lease, the vehicle will be sold. The money acquired by the sale will be used to pay for the rest of the lease. The remaining amount will be distributed to the creditors. Real estate properties that are not part of the applicant's primary residence may be considered as nonexempt assets. Other nonexempt assets can be artwork, instruments that are not used as part of work, collections such as stamps, jewelry, any clothing that is not used as business attire, cash, funds in the bank, and stocks and bonds.
Exempt Assets in Chapter 7 Bankruptcy
An applicant's primary residence may be considered exempt property. This will vary based on the applicant's state homestead exemption. Factors such as late payment on the mortgage can affect the homestead exemption. Not all of the states have a homestead exemption. Moreover, the homestead exemption differs by state.
The applicant's main vehicle for transportation can be exempted up to a certain value. Also, the applicant's clothing may be exempt up to a certain value. Even some jewelry can be exempted up to a certain value. If the applicant uses any tools for work, they may be classified as exempt. Pensions and social security can be classified as exempt if they are not in the possession of the applicant as a cash value.
For more information on how to file chapter 7 bankruptcy, contact your local attorney.Share