Chapter 7 Bankruptcy: After the Meeting of Creditors
Many people filing Chapter 7 bankruptcy wonder what happens after they have completed the meeting of creditors. What are the timelines for wrapping up the bankruptcy process and what else do you have to do?
What happens to my property after the meeting of creditors?
As part of your filing, you were required to list all of the property you were trying to keep out of the bankruptcy process. This is often referred to as exempt and excluded property.
Property that is excluded includes things such as retirement accounts or education savings accounts.
Property that is exempt is personal property that you keep after bankruptcy so that you can get a fresh start. This includes but is not limited to items such as clothing, furniture, a home or car. There are limits on exempt property.
As part of the bankruptcy process after the meeting of creditors, your creditors or the trustee can raise an objection to property you are claiming is exempt or excluded. If no one raises an objection, then you are allowed to keep all of the property you listed in your filing.
If you have property that is either above the maximum limit for exempt property or is not exempt from bankruptcy, the trustee can make a choice as to whether he or she will take possession of the property to convert it to cash. For example, it may be that your clothing is worth more than the $500 allowed under Arizona law. Perhaps you have items that take the total to $600.
Legally, the trustee can take the clothing that is worth the additional $100. But the cost of taking the property and converting it to cash may not make it worthwhile. So if the trustee closes your case and does not require you to turn over the property, you get to keep it. The trustee has legally “abandoned” the property and it goes back to whomever owned it prior to the bankruptcy filing. The decision to abandon property is final.
However, it’s important to note that if for some reason you forgot or chose not to list property in your bankruptcy paperwork, the trustee can reopen your case to decide how to deal with that property. It is important to work closely with one of our attorneys to include all of your property in your case. We want to ensure that you take full advantage of the bankruptcy laws to keep property that you are legally entitled to keep.
What happens to property that I used as collateral for a loan?
If you have property that secures a consumer debt you need to make a decision as to what you want to do with that property. For example, let’s say you bought a $2500 flat screen TV and financed it through the store (as opposed to using a credit card). You still owe $1800 on the loan and the TV is collateral for the loan.
When you file bankruptcy you must include a statement of what you intend to do with the TV, or any other property that was used as collateral for a consumer debt. You have several options with regard to the TV. One option, usually the least desirable, is that you can “reaffirm” the loan. When you reaffirm the debt, it means that you will continue to pay the loan after the bankruptcy and more importantly, the original loan terms will continue.
It is important to discuss this option thoroughly with one of our attorneys. Reaffirming the loan means that bankruptcy does not change the loan in anyway. The bankruptcy court must also approve any reaffirmation.
Your other option is to surrender the TV as part of the bankruptcy process. The trustee will then make whatever decision is needed regarding the TV and the loan is included in the bankruptcy process.
You can also choose to “redeem” the TV. When you redeem the TV you essential pay the replacement value of the TV to the creditor. So in the example, you still owe $1800 on the loan for the TV. It may be that the TV’s replacement value is $900. You might be able to agree to pay the creditor $900 for the TV and are allowed to keep it.
As part of your bankruptcy, you must make these decisions prior to filing and submit a statement of intent at the beginning of the bankruptcy. You then have 30 days after the meeting of creditors to follow through on your intention for the property. You can request a time extension from the court as long as it is before the 30-day deadline.
What happens if I don’t have any assets to sell in Chapter 7 bankruptcy?
Many cases of Chapter 7 bankruptcy are considered “no asset” cases. This doesn’t mean that you don’t own any property, but that all the property you own is either exempt or excluded from the bankruptcy process.
You might instead have a “nominal asset” bankruptcy. That means that any property you own is only worth slightly more than what is allowed under the Arizona property exemptions. Sometimes the terms nominal asset and no asset are used interchangeably in bankruptcy cases.
In the case of a nominal asset Chapter 7 bankruptcy, the trustee must make a decision about property that is potentially worth more than the allowed exemptions. For example, under Arizona law you can exempt a car’s value up to $5000. Let’s say your first car is worth $5000 and is covered under the exemption. However, you own a second car that is worth $600.
It may be that selling the second car would cost more than it’s worth. The trustee can decide to abandon the property, in which case it reverts back to you. If the trustee decides to sell the car, you can discuss with your attorney the possibility of requesting that the trustee abandon it on the grounds that the costs of selling the car will wipe out any financial benefit to your creditors.
Selling non-exempt property
If your bankruptcy case includes assets that can be sold, you must turn over the property to the trustee after the meeting of creditors. It is possible that the trustee will give you the option to buy non-exempt property before selling to a third party. If this happens, you would pay the value of the property to the trustee and that would be combined with any other money from the sale of your other property and given to your creditors.
It can be hard to predict whether or not a trustee will decide to sell non-exempt property. He or she will consider the value of the property, how much it will cost to sell the property and whether or not the amount left after the selling costs are paid are enough to go through with the sale. If the trustee decides that the costs of selling are higher than the value of the property, he or she can decide to abandon it and the property comes back to you as the owner.
As part of the process, the trustee gives notice to you and your creditors that he or she will be selling the non-exempt property. This gives you and your creditors a chance to object to the sale.
Because our bankruptcy attorneys have decades of experience with Arizona Chapter 7 bankruptcys, we encourage your to sit down with us to discuss your case. We can answer any questions you might have and give you the best advice to ensure you retain as much of your property as possible during your bankruptcy. Call our office to set up your consultation.