The Bankruptcy Alphabet – P is for Property of the Estate

Upon filing of the bankruptcy petition, a bankruptcy estate is created. This estate consists of the majority of the debtor’s assets and is the starting point when determining which assets may be liquidated to pay creditors.

Property of the estate is defined in Section 541 of the Bankruptcy Code. Why does it matter? Because this property doesn’t belong to the debtor, it belongs to the bankruptcy estate and the trustee will either administer it (sell it and distribute the proceeds to creditors) or abandon it (let the debtor keep it). Property of the estate ties in with exemptions, which have been discussed HERE. If property of the estate has been properly exempted, the trustee will abandon it and the debtor will retain it. If it can’t be exempted, the debtor has two options: (1) surrender the asset to the trustee for liquidation, or (2) file a Chapter 13 bankruptcy and pay the nonexempt value into the plan over 3-5 years. For example, let’s say the debtor has a vehicle worth $5,000, no liens against it, and no exemption available to protect it. If the debtor wanted to keep the vehicle, he could pay that $5,000 into the Chapter 13 plan over 3-5 years and essentially “buy back” the vehicle from the bankruptcy estate.

While most of a debtor’s assets are property of the bankruptcy estate, some property is excluded from the estate by statute. These exclusions are in § 541(b) of the Bankruptcy Code. The list is pretty long, but it includes certain Education IRA’s, most retirement plans, and trusts that include valid spendthrift provisions. As you can see, there are two categories of property that a debtor can keep in a bankruptcy case. Property that goes into the bankruptcy estate and is then taken out using exemptions, and property that never goes into the bankruptcy estate at all.

Most of my clients never have to worry about losing assets. The exemptions available in Wisconsin are reasonably fair, and I can usually exempt 100% of my clients’ property. If you have an asset that you can’t risk losing, be sure to discuss it with your bankruptcy attorney before filing.

Bankruptcy attorneys from around the country are taking part in this “Bankruptcy Alphabet” exercise. Please take a few minutes to check out these other blog posts on the letter “P.”

Pay Advice – by New York Bankruptcy Lawyer, Jay S. Fleischman
Payment – by Jacksonville Bankruptcy Attorney, J. Dinkins G. Grange
Personal Bankruptcy – by Livonia, Michigan Bankruptcy Attorney, Peter Behrmann
Phone Call – by Cleveland Bankruptcy Attorney, Bill Balena
Plan – by Omaha/Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell
Planning – by Los Angeles Bankruptcy Attorney, Mark J. Markus
Power – by Lakewood, CA Bankruptcy Attorney, Christine A. Wilton
Preference – by Maui Bankruptcy Attorney, BankruptcyHI.com
Preference – by Marin County Bankruptcy Attorney, Catherine Eranthe
Preferences – by Colorado Springs Bankruptcy Attorney Bob Doig
Pride – by Southgate, Michigan Bankruptcy Lawyer, Christopher McAvoy
Property of the Estate – by Philadelphia Suburban Bankruptcy Lawyer, Chris Carr

Image Credit: TooFarNorth/flickr

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