Chapter 7 bankruptcy is a liquidation bankruptcy and if the filer has property that is not protected by the available exemptions, the bankruptcy trustee sells the property for the benefit of all unsecured creditors. The vast majority of all consumer Chapter 7 bankruptcy cases filed in the United States do not result in the sale of any assets by the trustee. Trustees never simply come and take an asset - whether that’s money in your bank account or a boat sitting in your driveway. Let’s look at what you can review to determine whether your trustee is likely to seize an asset from you and what to expect once your case is filed.
How do I know if any of my property is at risk before filing my case?
The good news is that you’ll be able to tell whether any of your property is not protected and may be seized by the trustee by looking at the exemptions you can claim in your state. If your bankruptcy forms are already filled out, you can also follow this guide on reviewing your Schedule C to determine whether any of your property is not protected by an exemption. Since all of your property has to be listed in your forms, you’ll be able to tell whether any of it may be seized by the trustee.
Even though a trustee can seize any nonexempt asset, they only do so if it makes sense to, based on the value and type of asset. So, the trustee may not seize any assets from you even if you have a few nonexempt pieces of property.
How do I know if the trustee is going to seize an asset after my case has been filed?
Your first correspondence from your bankruptcy trustee is typically the form letter, questionnaire, and request for documents that most trustees mail to all filers before their creditors’ meeting. Since this correspondence is a ‘one size fits all’ type form letter, it’s unlikely that you’ll learn anything about the trustee’s intentions with respect to your nonexempt property from it.
The first time you’ll speak to the trustee is during your creditors’ meeting. If the trustee already knows that they’ll be administering assets in your case, they may discuss it with you then. Some trustees will even give the filer the opportunity to make an offer to essentially “buy back” the nonexempt asset from the bankruptcy estate. Even if you’re not given that chance during your creditors’ meeting, you will have the opportunity to negotiate about buying back your nonexempt assets later in the case.
If it doesn’t come up during the creditors’ meeting, you will find out if the trustee is interested in one or more of your assets when you receive a letter from the trustee’s office with a request to turn the property over to the trustee. You should not ignore this request. Remember, you have a duty to assist your trustee in the administration of your estate and not doing your part can jeopardize your fresh start. The trustee can ask the court to order you to turn over the property and - ultimately - can ask the court to deny your discharge for failure to cooperate.
The trustee told me to update my exemptions. What does that mean?
At your creditors’ meeting, your trustee may request that you make an amendment to your claimed exemptions. This is usually an indication that you forgot to claim one (or more) of the available exemptions to protect certain property. Despite what it may feel like, trustees are not out to take all your stuff and if they notice that something you own should be protected by an exemption, they’d rather have you file an amendment now than worry about it later. If your trustee tells you to add or update a claimed exemption, do so. Otherwise, the trustee may not have a choice but to seize the nonexempt asset.
If you’re an Upsolve user, our software can help you prepare this amendment. Please contact us by submitting a request through our Help Center to let us know how we can help.
If the trustee asks you to remove a claimed exemption, on the other hand, consider this an indication that they’re interested in seizing the asset. If you believe you’re entitled to the exemption you claimed, don’t make the amendment. The trustee can always file an objection to the claimed exemption. Then it’s up to the judge to determine whether available exemptions protect the property at issue.
What if I don’t hear from my trustee at all?
It can be a bit nerve-wracking to wait for the trustee to let you know their intentions. After the creditors’ meeting, no news (i.e. no further communications) from the trustee’s office is usually good news.
You’ll only know for sure that the trustee won’t be interested in selling any of your nonexempt property if they file a “no-asset” report. This report - which will appear on your case docket but typically isn’t sent out in hard copy format - tells the court and your creditors that there is nothing in your bankruptcy estate that the trustee will seize. It essentially designates your case as a no-asset case. If that happens, all you have left to do in your case is take the second counseling course if you haven’t done so already and wait for your discharge to be entered.
If, on the other hand, you receive a copy of a notice to your creditors instructing them to file a claim or proof of claim in your case, expect the trustee to be in contact regarding your nonexempt assets. Make sure to update both the court and your trustee with any changes to your contact information, so you don’t miss any important correspondence.