When you file for bankruptcy, almost all of your property becomes part of the bankruptcy estate. What happens to the property will depend on the bankruptcy chapter you file.
Read on to learn more about the property in the bankruptcy estate.
The bankruptcy estate includes almost all property you own or have an interest in when you file for Chapter 7 bankruptcy. Any assets you acquire or become entitled to after your filing date isn’t included in the Chapter 7 estate, with a few exceptions. The following are common types of property included in the bankruptcy estate.
With a few exceptions, such as Social Security payments and ERISA-qualified retirement accounts, all of the property you own will be part of the bankruptcy estate. Possessing the property isn’t a requirement. For instance, if you loaned a car to a friend or gave a security deposit to your landlord, it’s still your property. You must disclose it in your bankruptcy paperwork.
If you have a right to receive an asset but haven’t yet, it’s still part of your bankruptcy estate. Common examples include accounts receivable, tax refunds owed to you, and unpaid income or commissions earned before filing your case.
In most cases, the property you acquire after filing for Chapter 7 isn’t the property of the bankruptcy estate. But exceptions exist. An inheritance; assets from a marital settlement agreement or divorce decree; life insurance proceeds; or death benefits acquired within 180 days after your filing date are part of the bankruptcy estate. You’ll need to alert the trustee if you become entitled to these funds.
If the property in your bankruptcy estate produces profits, such as investment property rental income, those revenues are the property of the bankruptcy estate.
If you give away or transfer your property before bankruptcy, the bankruptcy trustee might be able to avoid (cancel) the transfer. The trustee will use the sales proceeds for the benefit of your creditors. As a result, any fraudulently transferred assets are part the property of the bankruptcy estate. You can learn more in Bankruptcy Clawbacks: Preferential & Fraudulent Transfers.
You can’t choose to pay one creditor over another. You must treat all of your creditors fairly in bankruptcy. If you make payments to a creditor shortly before filing your case, the trustee might be able to get that money back. The trustee will distribute the funds to your creditors. Learn more by reading What Is a Preferential Debt Payment in Bankruptcy?
If you live in a community property state, all community property is part of your bankruptcy estate. It doesn't matter whether you're filing a joint bankruptcy with your spouse or filing alone. However, your spouse’s separate property isn’t part of your bankruptcy estate if you file on your own.
If you’re filing a joint bankruptcy with your spouse in a common-law state, both spouses’ separate and joint property will be included in the bankruptcy estate. If you file alone, only your separate property and your portion of any joint property—typically half—is part of your bankruptcy estate. Learn more in What Happens to Joint Property in Bankruptcy?
If an asset of the bankruptcy estate increases in value, the appreciation is also property of the bankruptcy estate.
A Chapter 13 bankruptcy estate includes all property of the estate described above. But unlike in Chapter 7 bankruptcy, the earned income and assets acquired after the filing date but before the dismissal, closure, or conversion of your Chapter 13 is also considered the property of the bankruptcy estate.