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If I File For Bankruptcy Relief, Can Creditors Take My Property?

Posted on May 17, 2012 in Bankruptcy, Chapter 7, Exemptions, Illinois, Wisconsin

The short answer:  technically yes, but creditors almost never do.  Most of our clients leave bankruptcy with everything they owned before filing.

The process for taking someone’s property in bankruptcy works like this:  When you file for bankruptcy protection under Chapter 7,  a Trustee is appointed to your case. The Trustee’s job is to see if he or she can sell your property in order to pay your creditors. That’s called a “liquidation”.  But, there are two major issues that prevent Trustees from taking property and selling it to pay creditors (and earn a commission) : secured property and exemptions.

Secured property is property that has a loan or lien.  If you don’t pay a debt secured by property, the creditor can take the property back through repossession, foreclosure, or other means.  The most common examples of secured property are homes and cars. A Trustee would have to pay off the secured creditor before the Trustee could pay other creditors. It is a waste of the Trustee’s time if only the secured creditor gets paid, so unless you have equity in your secured property, the Trustee isn’t going to want it. The other reason Trustees don’t take your property is exemptions.

Exemptions are state or federal protections that prevent someone filing for bankruptcy from being left with nothing. When a person in bankruptcy applies an available exemption, it means the creditor cannot take that property or a certain amount of the property. An example is the Illinois state exemption for a car. In Illinois, a debtor gets $2,400 for a car. So, if the Trustee sells a car the first $2,400 goes to the person who filed bankruptcy. A Trustee wouldn’t go to all of the trouble of filing the appropriate paperwork with the court, taking the car and selling the car unless the car was worth much more than $2,400 which would go to the person in bankruptcy.

As you can see, while it is possible for a Trustee to take property from someone in bankruptcy, the odds of it happening are low.  If you are concerned about keeping your possessions but need to file bankruptcy, please contact us to discuss how we can protect your assets and still get you the financial relief you need.

This post was authored by Lakelaw associate Nicholas D. Strom



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