One of the most popular questions asked by bankruptcy filers is, “Will I lose any of my assets in bankruptcy?” The short answer is, “No,” but keep reading anyway.
Your assets come into play more in a Chapter 7 bankruptcy than a Chapter 13 because the Chapter 7 trustee’s focus is on the value of your non-exempt assets, whereas the Chapter 13 trustee’s focus is on your household disposable income.
What are your “non-exempt assets?” Under Florida law, certain of your property is protected from creditors and, by extension, the bankruptcy trustee. For instance, all of your home equity is exempt, subject to some rare restrictions. You also have exemptions for retirement accounts, workers compensation proceeds, personal property, equity in an automobile and more. On our website, we provide a full list of Florida exemptions. So, the trustee is going to look at the value of all of your assets and subtract any allowable exemption. The remaining value is known as your “non-exempt assets.”
As I stated, asset values are definitely more heavily scrutinized in Chapter 7 cases. If the trustee disagrees with the values you place upon your assets, he has the right to hire, at his expense, an appraiser to inventory and value all of your non-exempt assets ~ usually just the personal property. Automobile value is usually determined by NADA or Kelly Blue Book.
In reality, a Chapter 7 trustee generally doesn’t want your stuff. Rather, he knows that the person who wants your stuff more than anyone else in the world is you. So, what the Chapter 7 trustee really wants is for you to “buy back” your non-exempt assets. For this reason alone, you should NEVER try to file a Chapter 7 bankruptcy without an experienced lawyer. Statistically, Chapter 7 trustees get much larger buyback agreements from pro-se debtors. An experienced bankruptcy attorney knows how to challenge values and negotiate with the trustee, ensuring your buyback agreement is as low as possible. The trustee only takes non-exempt assets when the debtor has no interest in buying them back.
What happens to that money the Chapter 7 trustee collects? He keeps 25% of the money collected as his fee, and he uses the remaining 75% to pay any costs of collection. Any money that remains after paying costs is paid to your creditors pro-rata.
The Chapter 13 trustee is concerned with your disposable monthly income more than your assets, but asset value definitely comes into play in Chapter 13. One requirement of a Chapter 13 Plan of Reorganization is that unsecured creditors be paid at least what they would have been paid if the debtor filed a Chapter 7. This is known as a “liquidation analysis.”
Unlike Chapter 7, a Chapter 13 trustee usually accepts the debtor’s valuation of his personal property. It is very rare for a Chapter 13 trustee to hire an appraiser to determine the value of a debtor’s non-exempt personal property. In addition, the liquidation payments to unsecured creditors can be spread out over 5 years, instead of the typical 12-month buyback agreement. For these reasons, Chapter 13 is often the preferred path for debtors with significant non-exempt assets.
Parker & DuFresne
The decision to file for bankruptcy is a difficult and lengthy one that should not be done without the legal guidance of an attorney that you trust. At Parker & DuFresne we specialize in bankruptcy law, and our goal is to get clients across Northeast Florida back on the road to financial stability. Through a thorough consultation, we’ll help you determine if bankruptcy is the right solution for you and help you identify exemptions specific to your case while we develop the legal strategy best suited for your case. Contact us today to learn more!