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A big challenge for me, and I suspect for all lawyers, is to be cautious when using “our language” with unsuspecting clients. At every consultation I am careful to define things like “automatic stay” and “discharge”. Still, there are some terms I will throw around without thinking twice. Recently I noticed a client’s quizzical look and realized I was using my bankruptcy language without giving her the benefit of a proper definition. The term I used was “estate”. The question my client didn’t want to ask was “what are you talking about?”
While most people are familiar with the term estate, even in a legal setting, many do not understand what it means in bankruptcy. In reality the term should not be that unfamiliar given that the estate in bankruptcy is very similar to an estate when someone dies. In every case when a business or individual files a bankruptcy case (be it Chapter 7, 11, 12 or 13), an estate is created. The estate consists of everything that the bankruptcy debtor (i.e., the business or individual who filed a voluntary case) owns at the time the case was filed (and in certain limited instances, the property the debtor gains an interest in up to 6 months after filing the petition). This is, of course, quite similar to the “estate” created when someone dies.
The person appointed to administer the estate is called a Trustee. Part of the Trustee’s job is to determine which assets you own are either excluded or exempt from the bankruptcy estate — based on the claims of exemption (and exclusion) provided by you or your attorney. If there are items, or parts of the value of items, that are not exempt or excluded from the bankruptcy estate, the Trustee will have assets at her disposal.
In a Chapter 7 case the Trustee will try to liquidate those items in order to raise cash to benefit unsecured creditors. In a Chapter 13 (or Chapter 12) case, the Trustee will verify that the payment plan you have proposed includes at least the amount that would be available for liquidation in a Chapter 7 case for your unsecured creditors.
Many people believe they own “nothing”, but that is almost never the case. While it is true that the vast majority of Chapter 7 cases are deemed to be “no asset” cases, that does not mean that the debtor owns nothing at all. It simply means that the debtor and the debtor’s attorney were able to find exemptions for all of the assets that the debtor does own, thus leaving the estate with no assets that could be liquidated for unsecured creditors.
Because everyone owns something it is vitally important that potential debtors in any bankruptcy case work with an experienced bankruptcy attorney before filing a bankruptcy petition. To schedule a free consultation call the Law Offices of James Wingfield at 508-797-0200 or visit the contact page of our website today.
The Law Offices of James Wingfield is proud to be a debt relief agency. We help the individuals, families and small businesses of the Worcester area file for bankruptcy relief under the United States Bankruptcy Code. The Law Offices of James Wingfield serves Central and Western Massachusetts clients in Worcester County, Hampden County, Hampshire County and Middlesex County including Worcester, Shrewsbury, Springfield, Westborough, Southborough, Framingham, Northampton, Natick, Amherst, Fitchburg, Leomister, Douglas, Uxbridge, Gardner, Belchertown, Holyoke, Wilbraham and Chicopee. The information contained and obtained in this website does not, nor is it intended to be, legal advice. Contacting us, be it through this website, via email of by telephone does not create an attorney-client relationship. An attorney-client relationship is only created upon execution of an engagement agreement or fee agreement.
[…] « The “Bankruptcy Estate” […]
[…] The story does not end there, however. With some pro-activity, the asset which is subject to a judicial lien may be protected from the creditor in bankruptcy, at least to the extent that the asset can be exempted. The bankruptcy code allows a debtor to strip a judicially acquired lien from personal or real property (or a bank account) “to the extent that the lien impairs an exemption” in the property. Whenever I represent a client I look at all liens on personal property (including bank accounts) and real property, to determine which liens can be removed, and we plan our case accordingly. As the object of the bankruptcy case is to allow the debtor a “fresh financial start” it follows that a debtor should be able to protect those assets that are exempt from a creditor who has taken a non-consensual lien. In some instances other liens, including both non-consensual and even consensual liens (such as mortgages) can be removed due to the value of the property or if they were acquired particularly soon before the bankruptcy filing. (But beware, in certain instances the removal of a lien can only be done by a Trustee and will benefit only the bankruptcy estate.) […]
[…] An individual debtor can keep any assets (or to be more specific: shield the assets from the bankruptcy estate, and ultimately unsecured creditors) so long as she can find a valid exemption. So, we really need […]