What Is Property of the Bankruptcy Estate?

The term “Property of the Bankruptcy Estate” can be confusing, especially when the Trustee announces that certain property of yours is in fact, property of the bankruptcy estate.  So what does that mean anyway, and why does it matter?

All of Your Stuff

The bankruptcy estate includes the property you own at the time that your Chapter 7 or Chapter 13 bankruptcy petition is filed. This means “all your stuff” when you filed unless specifically exempted under the bankruptcy code.  If you owned it or had a right to own it when you filed, it’s part of the bankruptcy estate.

Assets you become entitled to after your filing aren’t included in the bankruptcy estate, except for a few exceptions such as awards of life insurance and inheritances within a certain timeframe. The following are common types of property included in the bankruptcy estate.

Your Bankruptcy Estate includes:

• All of the property you have on you or in your possession
• Property you gave away recently without getting paid for it
• Your share of property you don’t entirely own
• Anything that is yours even if it’s not in your possession
• Property you are entitled to but haven’t yet gotten (think tax refund)
• Income you make from your property (such as rental income)
• Certain assets you receive within 180 days after filing (for example, an inheritance or life insurance proceeds)

Why does this matter?

The general theory here is that once you seek relief in Bankruptcy, the “Court” takes all of your stuff (assets), sells it, and gives the proceeds from selling your stuff to the creditors.  Whatever debt remains after that is then discharged or “killed off”.  This is why a Chapter 7 is often referred to as “Liquidation”.  The Court liquidates your stuff!

But they do not take everything from you.  No, they will not take the food out of the fridge or the clothes off your back.  You are allowed to keep certain amounts of stuff (property) in certain categories.  These amounts are called “Exemptions”.  For example, you are allowed to keep a certain amount of equity in your home through the homestead exemption or certain equity in your car through the automobile exemption.

All of the property you own (your “bankruptcy estate”), needs to be considered and properly valued so that these exemptions can be properly applied.  If a certain piece of property is not considered, it may not be exempted and you may be required to turn that property over to the Trustee for sale and distribution to the creditors.  This is why they constantly ask you if you’ve listed all your assets.

Hence, all of the property you own at the time of filing is your bankruptcy estate.  Your attorney can generally protect all of it, or at least explain to you what’s not protected, but your attorney has to know about it.  It is extremely important to disclose all of the property in order to protect it.  If additional property is found after the filing, it is still part of the bankruptcy estate, but may not be protected.

Painful Example:

• Debtor list what he thinks is all of his property before filing a Chapter 7
• Attorney includes and protects all that property exempted in the bankruptcy estate
• Debtor then tells attorney about the bars of gold buried in the backyard
• Those bars of gold are still part of the bankruptcy estate
• Attorney cannot protect those bars, there’s not enough exemption, too much equity
• Trustee takes the bars of gold, sells them, and pays the creditors.
• Debtor wishes he had listed all of his assets when originally asked by attorney

The Bottom line:  Be sure to list all of your stuff!