One of the duties of a Chapter 7 trustee is to look for assets he can seize and sell, so he can pay himself and distribute the proceeds to the creditors who choose to file claims for a portion of the proceeds. The Chapter 7 trustee will closely examine the Chapter 7 debtor’s schedules and Statement of Financial Affairs to see if the debtor owns any non-exempt property or transferred any money or property to a third party (such as a friend, relative, or stranger). Each state has a list of property that creditors cannot touch. This property is referred to as exempt property. In Arizona, there is such a list of exempt property. Some of the items includes a house, a car (or two cars if a person is married), household furniture, retirement accounts, etc.
There are monetary value limits associated with most of the exemptions, so your attorney will need to know the value of your house, the value of your car, and the value of other assets that have limits associated with them. If you have property that is not exempt or if you have exempt property that is above the exemption limit for that kind of asset, the Chapter 7 trustee will probably take the asset from you, sell it and distribute the money to the creditors after first paying himself (and his attorney, if one is needed to handle legal issues associated with the process).
If you have exempt property but the asset’s value exceeds the exemption limit, the trustee will either sell the property, give you the amount of the exemption limit, or, in some cases, give you the option to pay the difference between the exemption limit and the value of the asset the trustee would otherwise seize. For example, if you are not married and you own two vehicles, and for the sake of simplicity let’s assume both are free of any loan or liens, and the value of the first car is $5,000 and the value of the second car is $3,000, the trustee may give you the option of paying $3,000 in order to keep the second car that would otherwise have to be taken from you.
The trustee would then notify the creditors that fund is available and instruct them to file what is called a “proof of claim” form to request a portion of the proceeds. Oddly, many creditors fail to take a few minutes to fill out and send in the form, and therefore get absolutely nothing from the proceeds. This only benefits the other creditors who did diligently take the relatively short amount of time to fill out and file their proof of claim form. The trustee will also look for what are called “preferences.” In bankruptcy law, you are not allowed to transfer property to an “insider” (for most people, this means a family member) within the past two years (or sometimes longer – using the Arizona’s fraudulent transfer laws that have a look back period of up to four years) because if you did that, the Chapter 7 trustee can sue that person for the recovery of the asset.
The trustee may also be able to make a claim against you as well, depending on the circumstances. However, even if the person is not a family member, the Chapter 7 trustee may be able to pursue you or the recipient if fair value was not received for the asset. For example, if you have a car worth $10,000 free and clear and within a year or so (or longer, depending on the circumstances) you sell it to a friend or anyone for far less than that, let’s say $5,000, the trustee may make the claim that you were intentionally trying to keep the asset from creditors or the bankruptcy court. If that can be proven, there will be great difficulties you will face; the consequences can be severe. This is why it is always important to obtain advice from a bankruptcy attorney before you engage in any financial transaction if you are contemplating a bankruptcy in the next year or two.
Another thing the Chapter 7 bankruptcy trustee will look for is whether you repaid more than $600 to any single creditor within the 90 days preceding the filing of the bankruptcy case. If so, that is considered a preference. The bankruptcy trustee will then go after that creditor to recoup the overpayment amount (but usually only if it is high enough to justify the Chapter 7 trustee’s time and effort) and redistribute it to the creditors in your Chapter 7 case. There are numerous other things the trustee looks for in your statements and schedules, but these are some of the more common items the Chapter 7 trustee will look for. It is critical that you obtain a bankruptcy consultation to find out if you will be opening a can of worms by filing a bankruptcy case.
Your case needs to be carefully screened to look for potential pitfalls. Too many people rush to file and regret not waiting longer to avoid serious financial and legal consequences.
Does The Debtor Ever Receive Proceeds From The Sale Of Their Home?
If a Chapter 7 debtor’s home is above the exemption limit and the trustee is unwilling to allow the debtor to pay the difference between the home’s equity and the exemption limit, the trustee will sell the home. After deducting the cost of sale, the first payout will be to the debtor. For example, if the debtor has owned the home for over two years, the exemption limit is approximately $.
For more information on Assessing A Debtor’s Petition, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (602) 466-7055 today.