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Debt & Bankruptcy


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Well, it's not quite that easy to "declare" bankruptcy. There is a whole lot more that goes into a bankruptcy case then just that you cannot pay your debts. In fact, your debts in the administration of the bankruptcy case is one of the least important things. Filing under Chapter 7 (which you want to do unless you have 1 of the 4 reasons that you cannot) is not about debt at all, but rather it's about your ASSETS.

Chapter 7 is a "Liquidation" case. The estates assets are sold off (liquidated) and those funds are used to pay back creditors (in accordance with their class and priority). However, for individuals (not companies) the bankruptcy code provides EXEMPTIONS from liquidation for certain types of property - up to a certain $$ limit. For example, you own a car that is worth $15,000, but you are still making payments on it and the balance you owe is $12,000, you have a car that has a value of $3,000. The federal exemption provides an exemption of $4,000 for a vehicle. As such, you can easily keep the car. Likewise, more frequently, the car is worth $12,000 and the balance on the car loan is $15,000. In this case the car has no ($0) value to the estate and the trustee has no interest and you can keep it, as long as you agree with the lending to keep making payments as if the bankruptcy case was never filed. [THIS IS OFTEN NOT FINANCIALLY SOUND and will be addressed in a later blog post.]

The trustee that is assigned to your case has the legal obligation to review your filing and determine (independently) whether you can keep the property under the exemption that you claim. BUT, sometimes when property is not exempt or fully exempt (there is $4,500 in equity in the car and after the exemption there is $500 left unprotected) the trustee will "abandon" it because the process of selling and recovering the un-exempt value will cost more than the amount to recover. Or, the item has no market that the trustee can sell it and, therefore, the effort will not result is any money that the trustee could pass on to the creditors.

ASSETS are what the trustee cares about -- not your debts. It's important to list ALL your assets as the trustee will search public and government records to discover if you have property that is not listed in the bankruptcy case. Since the trustee is paid but the amount of assets they liquidate, they are highly motivated to take everything the law allows them to take from you.

It is always wise to be represented by a good knowledgeable bankruptcy lawyer. It is critical to be represented by a bankruptcy expert the more assets you have; especially, if you own real property (land/house). Real property is the gold mine for trustees.

If you wish to know more about assets and exemptions, please call me: 248-666-6004 or write to me directly at jsaulski@saulskilaw.com.

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