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What Is Nonexempt Property In Bankruptcy, And Why Does It Matter?

You’ve undoubtedly heard of bankruptcy. Some people swear they’ll never file bankruptcy, while others regularly use it as a tool. No matter which side you’re on, chances are you have heard of the term “non-exempt property.” But do you know what this is or why it matters? If not, it is time to read on and get some answers! Our competent bankruptcy attorney at Dray Legal can explain this in more detail.


Why do people file for bankruptcy?

A bankruptcy filing is an option for the majority of individuals who are already in financial difficulty long before they file.

But why do so many people find themselves in financial trouble? One factor is the high cost of healthcare, which makes it more difficult for many Americans to pay their bills. Medical debt is the primary reason Americans declare bankruptcy. Another aspect is the increased accessibility of credit loans, which makes it simpler for Americans to end up spending more than they can afford.

I’m sure other factors contribute to our nation’s high rate of personal bankruptcy, but I think these two are at the forefront.


Bankruptcy and Your Property

When an individual is declared bankrupt, his or her property vests in (becomes the property of) the Trustee (a civil servant or insolvency practitioner). They then exercise control over the merchandise sold to satisfy creditors.

All assets should be disclosed to the Trustee. What you can keep is entirely up to them. The Trustee seizes all non-exempt assets. They will sell them and use the revenues to pay for the bankruptcy’s fees, charges, and expenditures before paying creditors. The Trustee confiscates your bank and savings accounts when the bankruptcy order is issued. If the account is in credit, the amount is a bankruptcy asset.


You Must Write Down All of Your Assets.

Essentially, once you file for bankruptcy, you must disclose ALL of your assets.

Among your assets are the following:

  • Your residence
  • Items found in your home
  • Automobile Financial assets
  • Additional physical objects

Additionally, your assets may contain items that are often overlooked, such as bank accounts, life insurance, inheritance, and possible litigation.

A competent bankruptcy attorney will provide you with a workbook to assist you in remembering your assets. Take your time when filing this worksheet.

Forgetting to list an asset might result in its loss. After listing all of your assets, your bankruptcy attorney will review the exemptions to see whether any of your assets are exempt.


What does the term “non-exempt property” mean?

In Chapter 7 bankruptcy proceedings, the phrase “non-exempt property” refers to a debtor’s estate property that does not qualify for a statutory exemption. A debtor’s property is not exempt “until the debtor claims an exemption for a specific property, at which time the property is exempt solely to the extent claimed or approved; exemptions do not operate automatically.”

The Trustee has the authority to seize and liquidate non-exempt property to benefit creditors. Additionally, creditors may take such property if a judgement against the debtor is entered.

Assuming  the property is exempted in a Chapter 7 proceeding due to the debtor’s exemption claim. The property is then “taken from the estate for the benefit of the debtor,” and the “Chapter 7 trustee” is prevented from liquidating or distributing to allowed creditors.

The following are examples of property that a Chapter 7 debtor is frequently required to surrender (“non-exempt” property) and property that is typically permitted to be retained by the debtor (“exempt” property).


Non-Exempt Assets

Typically, the debtor must forego the following:

  • musical instruments that are pretty expensive.
  • collectible stamps, coins, and other memorabilia
  • heirlooms
  • investments include cash, bank accounts, stocks, bonds, and other assets.
  • second car or vehicle
  • second abode or holiday home


Property That Is Exempt

The following items are considered exempt property (things that a debtor may typically retain):

  • automobiles up to a specific value
  • reasonably necessary clothing
  • products and furnishings for the home that are reasonably necessary
  • domestic appliances
  • jewellery, up to a particular amount
  • pensions
  • portion of the debtor’s home’s equity
  • up to a certain sum, tools are required for the debtor’s trade or occupation.
  • earned but unpaid wages
  • public assistance benefits (welfare), social security, and unemployment compensation may be accumulated in a bank account.
  • personal injury compensation


Non-Exempt Assets and Chapter 13 Bankruptcy

The filer maintains all non-exempt property as long as unsecured creditors get the value of the non-exempt asset under the Chapter 13 repayment plan. Meaning, the Trustee will not sell your non-exempt property. Rather than that, you will pay an amount equal to the value of the non-exempt property to your unsecured creditors (creditors whose debt is not covered by collateral).


What happens to non-exempt property in a Chapter 7 bankruptcy?

When you petition for bankruptcy under this chapter, the bankruptcy trustee—the person chosen by the court to oversee your case—will liquidate your non-exempt property to benefit your creditors. The Trustee will distribute the sale proceeds in the order authorized by bankruptcy law.

Priority debts, such as domestic support obligations (child or spousal support) or tax debt, will be paid first. Suppose you have no priority debt or funds remain after paying off all priority debt, the Trustee will settle any non-priority unsecured obligations, such as credit card bills, personal loans, and utility payments.


Chapter 7 Exempts How Much Cash?

Many people wonder how much cash they can have in the bank when declaring bankruptcy.

Will you lose your money if you file for bankruptcy? No, some cash are excluded in a Chapter 7 case.

For example, you may have up to $20,000.00 cash on hand or in the bank on the day you declare bankruptcy.

Most of my customers have less than $20,000.00 in their bank accounts when they file their bankruptcy. However, let’s assume you had $23,000.00 in the bank when I filed your bankruptcy. Chapter 7 trustees may seize excess exemption funds and pay them to creditors.

So, you keep $20,000, and the Trustee gives your creditors $3,000 (the non-exempt amount).

You owe your discharged creditors nothing more, and your bankruptcy is still successful. 


Non-exempt property is one of the most critical issues in bankruptcy.

If you’re considering bankruptcy, it’s crucial to understand what property you can keep and what property is exempt from seizure. The non-exempt property in a bankruptcy case can be liquidated or sold to help settle your debt.. 

Make sure you know where you stand legally before making any financial decisions. Fortunately, you can find cost-effective help in dealing with the bankruptcy process. Contact a bankruptcy attorney at Dray Legal today if you have any questions regarding how the law works. Don’t delay.



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