Filing a Chapter 7 With and Without Assets

SOMF Asset Patterns

SOMF Asset Patterns (Photo credit: Wikipedia)

Questions are sometime raised on bankruptcy forum websites by potential bankruptcy filers concerning filing a chapter 7 with and without assets. As an example, one particular blogger recently asked, “I’ve read some threads where members are posting about filing with assets and no assets. If we file a Chapter 7, where would I find if we filed with assets or no assets?”

When filing a Chapter 7, state and federal exemptions on assets determine whether or not you end up filing an asset or a non asset case. Some states will allow you to choose whether to use state of federal exemptions. Others will insist you use state exemptions when filing bankruptcy.

Exemptions are the amount in value of money or property you are allowed to keep during and after a bankruptcy to be used as you see fit in making a fresh new start. The exemptions are governed by state or federal laws and cover every category of assets that you may possess or own.

For instance, you may have a checking account with $5,000 in it at the time of filing a Chapter 7. Your state exemption might be $1500 for cash and the federal exemption $4,000 for cash. If your state allows you the choice of either state or federal exemptions, it might be advantageous for you to choose the federal exemption list because in this case, it will allow you to keep more of your cash.

Because there will be more cash in the account than there is an exemption for the asset, your case would be an asset case.

In an asset case during a Chapter 7, the bankruptcy trustee will take your non-exempt assets, liquidate them to cash unless they are already in the form of cash, and divide the non-exempt portion received for the assets amongst your unsecured creditors. If the trustee liquidates a secured asset with non-exempt equity, he or she must pay off the secured creditor first before satisfying the unsecured debt. He or she must also satisfy your exemption portion with any equity monies gained before paying the unsecured creditors.

Whichever exemption list you choose, state or federal, all assets you possess must be protected through the same statutes. For instance, if you choose to take the $4,000 federal cash exemption as illustrated above, you must use the federal exemptions list for all the rest of your assets that you possess.

A non asset case is when you do not have any assets that represent more than your allowed exemptions, either state or federal. Most Chapter 7 cases are non asset cases.

In answer to the bloggers question about where you to find out whether or not your Chapter 7 is an asset or non asset case, the bankruptcy trustee will notify all parties concerned if there are assets in the case. The creditors have 180 days from the date the case is filed to make a claim. If there is no assets in a Chapter 7, the trustee will discharge the debts and close the case whether the creditors make a claim or not.

If you are concerned about whether your situation is an asset or non asset case, your bankruptcy lawyer can help you determine which is the circumstance.

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