Can I Dismiss My Chapter 7 Bankruptcy If the Trustee Wants to Sell My Property?

by: Baran Bulkat, Attorney

If you file for Chapter 7 bankruptcy and later realize you will lose valuable property, can you dismiss your case? Unfortunately, if the bankruptcy trustee wants to sell your nonexempt property in Chapter 7 bankruptcy, you usually cannot dismiss your case to save your assets. However, you may be able to keep your property if:

• the court allows you to convert your case to Chapter 13 bankruptcy, or
• you buy back your property from the trustee.

The Trustee Can Sell Your Nonexempt Property in Chapter 7 Bankruptcy

Chapter 7 bankruptcy is commonly referred to as a liquidation bankruptcy because the trustee appointed to administer your case has the power to sell your nonexempt property to pay your creditors. When you file for Chapter 7 bankruptcy, your assets become property of the bankruptcy estate (meaning that the court can administer them for the benefit of your creditors). The trustee's job is to determine whether any of your property should be sold to pay back your debts.

Exemptions protect your property in Chapter 7 bankruptcy. The trustee is not allowed to sell all of your property. In fact, most Chapter 7 bankruptcies filed in the U.S. are no-asset bankrutpcy cases (meaning that there is no property available for creditors). Each state (and the federal system) has a set of bankruptcy exemptions that allow you to keep a certain amount of property in Chapter 7 bankruptcy. If all of your property is exempt, the trustee can't liquidate any of your assets. (Learn more about bankruptcy exemptions.)

You Don't Have an Automatic Right to Dismiss Your Chapter 7

In most cases, you can only dismiss your Chapter 7 bankruptcy for cause (meaning that you must have a good reason). If you don't have any nonexempt property that the trustee can liquidate and you have a valid reason for requesting dismissal, many bankruptcy courts will allow you to voluntarily dismiss your case.

But if you are trying to dismiss your bankruptcy to keep the trustee from selling your nonexempt assets, the trustee or your creditors will object to your dismissal request. In general, unless you have an extremely compelling reason (other than trying to save your property), many bankruptcy courts won't allow you to dismiss your Chapter 7 if:

• you have nonexempt assets that can be used to repay your creditors, or
• dismissal of your case will prejudice (harm) your creditors in any other way.

Can You Still Keep Your Nonexempt Property?

Under certain circumstances, even if the court doesn't let you dismiss your Chapter 7 bankruptcy, you might be able to keep your property.

You May Be Able to Convert to Chapter 13 Bankruptcy

Most Chapter 7 debtors have a one-time right to convert their case to Chapter 13 bankruptcy. In Chapter 13 bankruptcy, you are allowed to keep all of your property in exchange for paying back a portion of your debts through a repayment plan. This means that you may be able to keep your nonexempt property if the court allows you to convert your case. (Learn about how Chapter 13 bankruptcy works.)

However, the United States Supreme Court has determined that there is a bad faith exception to the one-time right to convert (meaning that the right is not absolute). If the court finds that you filed your bankruptcy in bad faith (examples of bad faith typically include concealing assets, lying on your bankruptcy papers, or otherwise trying to abuse the bankruptcy process), it may not allow you to convert to a Chapter 13.

Offer to Buy the Property Back

If the trustee is planning to sell your property, you can always offer to buy it back. Because the trustee will have to incur costs to store and sell your assets, he or she will typically be interested in selling them back to you if you make a reasonable offer. Also, if the trustee wants to proceed with a public auction, you can attend and bid on your property to get it back.