When a bankruptcy case is filed, section 541 of the Bankruptcy Code provides that all the debtor’s legal and equitable interests become assets of the bankruptcy estate. Commencement of a bankruptcy case creates an “estate”. Put simply, your stuff isn’t yours anymore; it belongs to the bankruptcy estate. Generally, your creditors must look to the assets of the estate for satisfaction of their claims. The estate consists of all property interests of the debtor at the time of case commencement, subject to certain exclusions and exemptions. For the most part, your bankruptcy estate consists of all of the property that you own when you file for bankruptcy.
What property is included in the bankruptcy estate? All of it—without exception. When you file for bankruptcy, you tell the court about your property by listing it on Schedule A/B. The types of property you’ll list include: real estate (residence, building, or land); vehicles (cars, vans, trucks, tractors, sport utility vehicles, motorcycles, watercraft, motor homes, ATVs, etc); personal and household items (furnishings, electronics, collectibles, sports equipment, firearms, clothes, and jewelry); financial assets (bank, stock, and retirement accounts, business interests, legal claims, tax returns, etc); business-related property and any other assets you own
Categories of Property
Property you own and possess when you file. If you own something and it’s in your possession, it’s part of your bankruptcy estate, even if you owe money on it. Property you possess but that belongs to someone else (like your friend’s DVD collection) are not part of the estate.
Property you own but don’t possess when you file. Even if you don’t possess an item of property that you own, it’s still in your bankruptcy estate. Examples of this type of property include security deposits held by your landlord, money in a lawyer’s trust account, the daughter’s car titled in your client’s name, or property that you’ve loaned to someone.
Property you are entitled to receive. If you have the legal right to property but have not yet received it, it’s still in your bankruptcy estate. Examples include wages, commissions, tax refunds, vacation pay, an inheritance, insurance policy proceeds from an event that has occurred already, and accounts receivable.
Some types of property that you acquire within 180 days after filing for bankruptcy. If you acquire or become entitled to the following items within 180 days after you file for bankruptcy, the property becomes part of your bankruptcy estate:
- an inheritance
- property you receive or have a right to receive from a marital settlement agreement or divorce decree, and
- death benefits or life insurance policy proceeds.
Revenue generated by other property in your bankruptcy estate. This would encompass any earnings produced by contracts that were in effect when you filed for bankruptcy. For example, if you wrote a book before you filed for bankruptcy, any royalties you collect afterwards are part of your bankruptcy estate.
Property that you fraudulently transferred prior to your bankruptcy. If you sold property during the two-year period prior to your bankruptcy for substantially less than property is worth, or if you gifted valuable property during this period, the transfer may be “fraudulent” and the property considered part of your bankruptcy estate. The trustee can sue to get the property back.
Preference payments. Bankruptcy law does not allow you to “prefer” one creditor over another. If you paid creditors more than a certain dollar amount before your bankruptcy filing (the time period differs depending on the type of creditor), the payments may become part of your bankruptcy estate. This means the trustee can sue your creditor to get the money back.
Protecting your Assets in your Bankruptcy Case
Every state has different rules on what property the debtor is allowed to protect and what value the debtor is allowed protect or “exempt” for that property. The Bankruptcy Code allows an individual debtor to protect some property from the claims of creditors because it is exempt under federal bankruptcy law or under the laws of the debtor’s home state. 11 U.S.C. § 522(b). Many states have taken advantage of a provision in the Bankruptcy Code that permits each state to implement its own exemption law in place of the federal exemptions. In other jurisdictions, the individual debtor has the option of choosing between federal exemptions or the exemptions available under state law. Thus, whether certain property is exempt and may be kept by the debtor is often a question of state law. Minnesota allows debtors to choose between state and federal bankruptcy exemptions. This means that your attorney has examined both sets of exemptions and elected the exemptions that better protect your assets.
The bankruptcy petition filed includes a schedule of “exempt” property And law allows married couples filing jointly to each claim a full set of exemptions, unless otherwise noted.
An exemption limit applies to any equity you have in the property. Equity is the difference between the value of the property and what is owed on the property. For example, a car valued at $5000 with a loan of $4500 has an equity value of only $500.
Filing bankruptcy under Minnesota exemptions does not mean that you have to give up all of your property. Through exemptions, you can keep a certain amount of your assets safe in bankruptcy. Many exemptions protect specific types of property, such as a motor vehicle or your wedding ring. Sometimes an exemption protects the entire value of the asset. Other times, an exemption protects up to a certain dollar amount of an asset. If you can exempt an asset, then you don’t have to worry about it being taken or affecting your bankruptcy.
If your specific asset does not have an exemption or goes over the dollar amount allotted to protect the asset, then that asset becomes fully or partially non-exempt (not protected in your bankruptcy). To keep a non-exempt asset in bankruptcy, a debtor must generally pay the trustee the value of the non-exempt asset. The debtor also has the ability to turn that asset over to the trustee if they do not want to pay to keep it.
by Dawn Ravn