Chapter 7 Bankruptcy

Four Basic Categories That Make Assets Relatively Unattractive To The Chapter 7 Trustee:

1. Liened assets. If the debtor owns a home worth say $200,000, but the property is mortgaged in the amount of $190,000, then there is virtually no equity for the bankruptcy trustee. The trustee is only interested in liened assets if there is substantial equity available for creditors.
   
2. Leased assets. If the debtor is leasing his or her vehicle, or is operating a business and leasing his or her equipment, there is rarely any equity worthy of liquidation.
   
3. Exempt assets. California law allows California debtors to protect certain assets from judgment creditors and bankruptcy trustees. The California Legislature has determined that if a debtor needs to start over again economically through a bankruptcy proceeding, it would rather see the debtor start over with something rather than nothing, so it allows certain assets to be protected as exempt from trustee administration.
   
4. Immaterial assets. Not all assets of the debtor may be liened, leased, or exempt, but often those assets which remain are not worthy of liquidation by a bankruptcy trustee because they are simply not worth enough money to warrant the time, expense, and burden to the bankruptcy trustee of liquidating the asset. For example, if the debtor owns a free and clear vehicle worth $4,000, and can only exempt the first $2,950, the likelihood of the bankruptcy trustee liquidating the vehicle just to administer the remaining $1,050 of equity is slim.

If the bankruptcy trustee concludes that all of the debtor's assets are liened, leased, exempt, or immaterial in value, he or she will file a one page document with the Clerk of the Bankruptcy Court called a "report of no assets," effectively advising the Clerk of the Bankruptcy Court that he or she reviewed the debtor's bankruptcy petition, schedules, and statement of financial affairs, examined the debtor at the meeting of creditors pursuant to 11 U.S.C. § 341(a), and concluded that no assets are worthy of liquidation or administration.

If you would like more information, or would like to discuss your situation with a California Chapter 7 bankruptcy attorney, please contact us.

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