Is it Possible to Keep Some of Your Nonexempt Property in Chapter 7?

In a Chapter 7 bankruptcy, the appointed trustee collects and sells part of the debtor’s assets and then distributes the proceeds to creditors. However, Chapter 7 debtors are not left entirely destitute. Assets that the debtor is allowed to keep are called exempt property. In addition, a Chapter 7 debtor may be allowed to keep certain nonexempt property.

The trustee might abandon an asset where there would be little or no value to be distributed to creditors if the item were sold. For example, suppose that the debtor has a home gymnasium consisting of some old exercise machines and free weights. A sale of these items would bring in a nominal amount of money. Moreover, gymnasium equipment is heavy and bulky. It would be difficult to transport and store the items in anticipation of a sale. The time, energy and cost to sell the equipment could easily exceed its current market value. Therefore, a trustee would likely abandon the property to the debtor.

A third party might also receive abandoned assets. When a creditor has a secured interest in property, they can often take it from the trustee. Suppose, for example, that the debtor owns two cars. The bankruptcy code allows an exemption for only one vehicle, so the second car is nonexempt and can be seized and sold. Assume that the nonexempt car is worth $4,000 but there is an outstanding car loan of $6,000. Since the car is worth less than the loan amount, there would be no money available for creditors other than the vehicle lender. Therefore, the trustee is likely to abandon the vehicle and turn it over to the lender.

Although the lender could sell the vehicle, that is not the only option. The lender might incur substantial costs and time in selling the vehicle. So the lender may agree to let the debtor keep the vehicle so long as the debtor makes regular loan payments. This would be a mutually beneficial arrangement. The lender gets the full amount of the loan without sales costs. The debtor keeps a desirable vehicle and avoids the cost and inconvenience of finding a replacement car. An experienced bankruptcy attorney may be able to work out other ways for the debtor to retain nonexempt property.

Jeff Field & Associates concentrates its practice on bankruptcy and debt relief in and around Atlanta, Marietta and Athens, Georgia. If you have a personal debt problem, feel free to contact us online or call 404-381-1278 for a consultation.