Why You Probably Won't Lose Everything In Chapter 7 Bankruptcy

30 December 2020
 Categories: , Blog


To the extent many people are familiar with Chapter 7 bankruptcy law, they often imagine it to be the one where the court sells all of a petitioner's valuable assets. While there are scenarios where someone with a lot of assets and massive debts might see a great deal of their property sold, this isn't always the case. Here's why you might hold onto more of your assets than you'd expect in Chapter 7 bankruptcy law.

Exemptions and the Role of the Trustee

Chapter 7 bankruptcy law has provisions meant to ensure petitioners aren't left destitute by the process. You have the right to file a set of exemptions. This is a list of the assets that you believe are appropriate for you to keep based on your state's laws.

The judge will name a court-appointed trustee, who is usually someone who has experience as either a bankruptcy attorney or an accountant. After reviewing your list of requested exemptions, the trustee will decide whether the exemptions are reasonable. If you have an objection to a trustee's findings, you can relay these to the judge. However, judges typically require compelling arguments or evidence to overrule their trustees.

Practical Considerations

One of the strongest arguments for letting a petition keep something is that it is practical. Within reason, you'll be able to keep your clothes, cookware, dinnerware, and furniture. Likewise, you'll have some mode of transportation. If you own the title to your primary residence outright, you may be able to keep your house.

The trustee has significant discretion to question these exemptions, though. If someone tries to claim a brand new luxury vehicle as the car they use to get to work, for example, the trustee can sell the car and give the petitioner part of the money to get something more reasonable.

No Sales Value

A trustee also has to make judgments about what can be sold or isn't worth selling. If assets have zero or negative value, the trustee may elect to skip selling them. The same applies if something of value is unlikely to sell at an auction or a sale and would require significant effort to find the right buyer.

Wildcard Exemptions

Some states allow what is called a wildcard exemption. A petitioner may be able to claim assets up to a certain dollar value. These can even be luxury items, as long as the total value of all of your exemptions doesn't exceed your state's statutory limit. Normally, this includes all of your requested exemptions, including the practical ones.