What Is a "No Asset" Chapter 7 Bankruptcy Case?

No asset Chapter 7 bankruptcy cases are common, and simple.

In a "no asset" Chapter 7 bankruptcy case, the debtor does not own any nonexempt property, cash, or valuables that the bankruptcy trustee can take. Since the trustee will not take any assets to sell and distribute to creditors, a no asset bankruptcy case is usually fairly straightforward. Many Chapter 7 cases are no asset cases.

How Do You File a No Asset Bankruptcy Case?  

A no asset Chapter 7 bankruptcy case is an informal name for a regular Chapter 7 case in which the debtor won't lose any property. The filing procedures are the same for all Chapter 7 bankruptcy cases.

File the Bankruptcy Petition

You file a packet of papers called the Chapter 7 bankruptcy petition. As with all Chapter 7 cases, you must qualify for Chapter 7 relief. This means you must past the means test and take a credit counseling course.

The Automatic Stay

When you file your petition, the automatic stay goes into effect. The stay prevents most creditors from continuing any collection activities during your bankruptcy case.

The Creditor's Meeting

As in all Chapter 7 bankruptcy cases, you must attend the meeting of creditors (also called the 341 hearing). At the meeting, the trustee will ask you a series of questions about your debts and property. Creditors usually don't attend. Most meetings last less than 10 minutes.

The Chapter 7 Discharge

At the end of your bankruptcy case, most of your debts will be discharged (wiped out). There are a few exceptions.

How to Determine if Yours is a No Asset Chapter 7 Case?

If you determine that under the available bankruptcy exemptions you would not lose any property, yours would be a no asset Chapter 7 bankruptcy case.  

In Chapter 7 bankruptcy, the bankruptcy trustee's job is to get as much money as possible for your unsecured creditors. The trustee does this by taking your property, selling it, and distributing it to your creditors.

Luckily, bankruptcy law allows debtors to keep some property in Chapter 7. Property that you can keep is called "exempt" property. Each state has a list of property that is exempt, either in its entirety or up to a certain dollar amount. Some states allow you to use a set of exemptions set by federal bankruptcy law instead of the state exemptions.

If your equity in a piece of property is covered by an exemption, it's safe from the bankruptcy trustee. For example, if you own a piano worth $2,000 and your state exempts up to $3,000 in musical instruments, you get to keep your piano.  

If, however, you have equity in your property that is not exempt, the trustee may sell it. For example, let's say your house is worth $500,000 and the balance on your mortgage is $250,000. If your state exempts up to $50,000 in a home, you will probably lose your home in Chapter 7. The bankruptcy trustee would sell the house, pay your lender $250,000, give you $50,000 (your exemption), deduct the costs of sale and trustee's commission, and then use the rest to pay your unsecured creditors.

If just a small amount of your property is nonexempt, the trustee will probably "abandon" the property. For example, say you own a car worth $10,000, the balance on your car loan is $9,000, and your state allows you to exempt up to $500 in a motor vehicle. If the trustee were to sell the car for $10,000, pay your lender $9,000, and pay you $500 (your exemption), that would leave only $500 to cover the costs of the car sale and trustee's commission. The trustee, realizing that little or nothing would be left to distribute to unsecured creditors, would probably choose not to sell the car. In this situation, you'd get to keep the car.

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