Kentucky Bankruptcy Law

Counsel with Care

Keeping your property through a bankruptcy

It is a pretty common misconception that folks have that they can “bankrupt” only certain debts or include only certain items of property they have in a Chapter 7 or Chapter 13 bankruptcy. The truth is that every single debt, even the one to Aunt May for the bookshelf you bought from her, and all your property, even the rickety old bookshelf that you got from Aunt May, must be included. All that you owe and all that you own goes into an estate. The trustee is the party responsible for handling the estate in such a way that maximizes what the creditors in the case get. Exemptions are your way of holding onto property and are detailed in 11 U.S.C. Section 522.

Now, obviously people thinking of filing bankruptcy want to keep their stuff. I am often asked whether the trustee will come into their home and take things from them. Except for an incredibly unusual circumstance, the answer to that is “no”. The bankruptcy code gives you exemptions which allow you to keep a lot of property. Some states, such as Kentucky, allow you to choose between state law exemptions or federal law exemptions. For most situations, the federal exemptions are more generous than the Kentucky exemptions. Under the federal exemptions, the vast majority of debtors are able to keep all of their property.

A recent Supreme Court of the United States case decided on June 17th, 2010, Schwab v. Reilly, 130 S.Ct. 2652, clarified exactly how the exemption works. While this clarification will not impact you, the average debtor, in any noticeable way, it is an important distinction for your attorney to know. When you claim an exemption you are actually exempting a dollar value of your interest in the property and not the property itself. The property remains in the bankruptcy estate until the trustee abandons the property or the case is closed.

The fact that you are exempting a dollar value interest in the property has some practical implications. For example, you should not dispose of (sell, destroy, give away) any property that you had when you filed the bankruptcy without checking with your attorney. Now, no one cares if you throw away your old skivvies, but you should check before getting rid of anything of substantial value. Another implication is that if you have a piece of property or asset that is likely to increase in value quickly, your attorney may need to move to have the trustee abandon the estates interest if it appears your case will be open for an extended time.

February 28, 2011 - Posted by | Bankruptcy, Chapter 7, Exemptions | , , , , , ,

1 Comment »

  1. […] the original: Keeping your property through a bankruptcy « Kentucky Bankruptcy Law ← J+S SOLUTIONS: How to File Bankruptcy without an Attorney. Do it […]

    Pingback by Keeping your property through a bankruptcy « Kentucky Bankruptcy Law | Filing Bankruptcy Without An Attorney | February 28, 2011 | Reply

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: