Many potential debtors who are considering filing for bankruptcy want to know what is property in bankruptcy, and how much of it do they have to disclose in their potential bankruptcy filing. When you contact a bankruptcy law firm regarding what assets of yours may be protected when you file bankruptcy, your bankruptcy attorney will be able to tell you what assets will be part of your bankruptcy estate and if any of your assets will not be part of your bankruptcy estate.
Property of the bankruptcy estate is defined in the U.S. bankruptcy code under 11 USC section 541. The law excludes certain assets a debtor may be entitled to or own, while most assets will be considered property of the bankruptcy estate. A debtors bankruptcy estate will consist of assets acquired prior to the date of filing your bankruptcy case aside from an inheritance that you may be entitled to in which you acquired rights 180 days after your bankruptcy case is filed. This means that if you have a personal injury claim from an accident that was incurred prior to the filing of your bankruptcy case or somebody passed away 179 days after you have filed for bankruptcy and left you an inheritance, a bankruptcy trustee can ask you to turn over any non exempt funds in order to use those funds to pay creditors that you had prior to the filing of your bankruptcy case.
Property of the bankruptcy estate may also include assets that you had a right to prior to the fling of your bankruptcy case but you failed to disclose because you were unaware of the asset. In this case you may amend your bankruptcy schedules to disclose the asset and apply any available exemptions to protect your rights to the asset, however failure to disclose the asset may result in you losing your bankruptcy discharge or being able to exempt and protect the asset from a chapter 7 bankruptcy trustee who may liquidate and sell the asset for the benefit of your creditors. After your bankruptcy case is filed and after your 341 meeting of creditors in a chapter 7 bankruptcy case, a chapter 7 bankruptcy trustee will determine whether they want to further investigate your assets to determine if they have equity above your allowed bankruptcy exemptions to protect your assets. In Washington state you can use federal or state bankruptcy exemptions to protect your assets, but not both at the same time. Federal bankruptcy exemptions are likely what you would use, unless you own real estate with equity, as the federal exemptions allow for more protection in other assets. If your chapter 7 bankruptcy trustee abandons your assets due to lack of equity above the allowed exemptions, these assets will no longer be part of your bankruptcy estate. If an asset does have equity does have equity above the allowed bankruptcy exemptions, the asset may be sold to pay your creditors or you can have your attorney attempt to negotiate a settlement with the chapter 7 trustee to pay the value the trustee would have received had they sold the asset.
It should also be noted that the bankruptcy “Automatic Stay”, which comes from section 362 of the bankruptcy code, only applies to property of the bankruptcy estate. The automatic stay prohibits creditors from taking any action against property of the estate, and can be a very important protection. Anybody who takes action against property of the bankruptcy estate may face severe damages imposed by the bankruptcy court if they attempt to collect on a debt. It is a violation of the automatic stay for a creditor to go after, or try to go after property of the estate. A “willful violation” of the stay is punishable by actual damages and possible punitive damages pursuant to section 362(k). If you have already filed a bankruptcy case, be sure to let your bankruptcy lawyer know if any creditor threatens to go after your property after you have filed.
In the alternative, if a debtor is attempting to stop a foreclosure on a home and is not sure if they are on the title or not to the home, the home may not be part of their bankruptcy estate, and if that is the case, the home foreclosure may continue as planned. Therefore, prior to filing for bankruptcy a debtor should confirm that they are in fact on title to an asset or not, as not knowing could have severe consequences such as losing an asset or failing to stop a scheduled foreclosure sale. A little bit of bankruptcy planning with your bankruptcy attorney can go a long way in helping to protect assets or get your desired result, even if it means you need to delay the filing of your bankruptcy case.
Money considered to be a ”trust fund”, such as taxes collected for the IRS or state sales tax, is not considered to be property of the bankruptcy estate. As a result, payments by a debtor to the taxing authority before filing for bankruptcy are not recoverable by the trustee as a preference. Additionally if a debtor is the beneficiary of a trust but cannot access the funds, then a bankruptcy trustee will have no further additional rights to the funds than the debtor has. Also be sure the trust includes a spendthrift clause to protect creditors from gaining access to the funds in the trust.
If you have additional questions about what is property in bankruptcy please schedule a free bankruptcy consultation with Symmes Law group today online or by calling 206-682-7975.
