What is an asset in bankruptcy?

Everything you own or have an interest in is considered an asset in your Chapter 7 bankruptcy. In other words, all your belongings are “assets” even if they’re not really worth much. That doesn’t mean that the bankruptcy trustee will sell everything you have, though. Far from it. 

Only assets that aren’t protected by a bankruptcy exemption can be sold by the trustee. And then only if they’re valuable enough to actually bring in some money to pay to your unsecured creditors. Most people filing Chapter 7 bankruptcy keep all of their belongings.^[1]

3 Types of Assets

There are three different types of assets (or property). There’s personal property, real property (or real estate), and intangible property. 

Personal property: That’s all of your “stuff.” Anything you own that you can touch and move is personal property. That does include the heavy dresser that you can’t possibly move without help. It also includes motor vehicles, furniture, clothing, jewelry, etc. 

Real property: That’s land or property connected to land, like a house. Depending on state law, mobile homes are often considered personal property because they can be moved, while many timeshares are considered real property. It’s pretty clear cut for most everything else. 

Intangible property: That’s everything else. It’s called intangible because you can’t really touch it. It’s your retirement account, your life insurance policy, your tax refund, the money in your bank account etc. 

These three types of assets make up the assets of your bankruptcy estate. This is true even if you don’t physically have the piece of property. 

Possession Not Required

It’s possible for something to be an asset in your bankruptcy case even if you don’t have physical possession of it. That applies to personal property (that beater car you loaned to your sister 3 months ago), real property (that plot of land you got from your grandfather that you couldn’t find on a map if you tried), and intangible assets (like the tax refund you’re getting for this year). 

Timing Matters 

Even though you don’t have to have the property in your physical possession when your bankruptcy petition is filed, bankruptcy law does draw a line in the send with respect to property you get in the future. 

With some small exceptions, only assets you had an ownership interest in on the date your bankruptcy petition is submitted to the court are considered property of the bankruptcy estate. 

In other words, anything you purchase with money you earn after the filing date is yours to keep. It’s still technically an asset but it’s not part of your bankruptcy estate. 

A Note About Tax Refunds 

You don’t have the tax refund for this year yet and you can’t get it until after you file your tax return next year. But, you’re entitled to at least some of it already. This is a classic example of an asset you have an ownership interest in on the date your Chapter 7 bankruptcy case is filed even though you don’t actually have the money yet. Since only assets that are listed on the schedules can be claimed as exempt, it’s best to list an expected refund on your Schedule A/B and claim the exemption (if any) on your Schedule. 

What Is a No-Asset Case?

Now that you’ve learned that everything you own is an asset, you may be wondering how it’s possible that so many Chapter 7 bankruptcies are no-asset cases. Everyone’s got some stuff, after all. 

Let’s start with some bankruptcy basics:

Chapter 7 bankruptcy is called a “liquidation” bankruptcy because the United States Bankruptcy Code empowers the trustee to sell nonexempt property to pay the filer’s unsecured debt (like credit cards and medical bills). Since Chapter 7 bankruptcy is supposed to give you a fresh start, your creditors aren’t entitled to all of your property.

What property can actually be liquidated (sold) depends on two things: 

1. whether you own it on the day you file bankruptcy; and, if so,

2. whether it’s protected by a bankruptcy exemption

Everything that falls under category (1) is considered an asset of the bankruptcy estate. If it’s protected by a bankruptcy exemption (either a federal exemption or one under state law, depending on where you file your bankruptcy case), the bankruptcy trustee can’t do anything with it. If all of the filer’s belongings are protected by a bankruptcy exemption, their case is a No-Asset Case. 

In that case, the bankruptcy trustee will submit a so-called “Report of No Distribution” to the bankruptcy court. This lets creditors know that they won’t have to file a proof of claim in the case because there are no nonexempt assets that can be used to pay creditors. In an asset case, on the other hand, unsecured creditors will get the opportunity to file a proof of claim with the bankruptcy court. Once the bankruptcy trustee has liquidated all nonexempt assets, they’ll receive a small payout. 

Asset cases tend to take a longer time to complete than no-asset cases, though that doesn’t generally delay the filer’s fresh start. That comes in the form of the bankruptcy discharge, which is entered once all requirements are met (the filer passed means test, completed credit counseling and debt management courses, and attended the meeting of creditors), no matter how long the trustee takes to deal with the nonexempt assets. 

Property Securing Debt 

When you finance property, like a house or motor vehicle, you own the item even though you’re still paying on the loan. So, the property is an asset in your bankruptcy case. Whether you’re able to keep the asset depends on the status of the loan. If the mortgage or car loan is behind, filing Chapter 7 bankruptcy will not allow you to keep the house or car. 

Secured creditors have the right to take back the assets that secure their loan if the filer doesn’t keep making their monthly payments. For home mortgages, that takes place in the form of a foreclosure. Cars used as collateral for car loans are repossessed by the lender.

This happens without regard to exemptions. The bankruptcy trustee will only worry about these types of assets if they’re worth more than the loan balance owed to the secured creditor. 

How is a Chapter 13 bankruptcy different? 

In a Chapter 13 case, there’s no such thing as an asset bankruptcy. That’s because the filer is able to keep all of their nonexempt assets. In exchange, the filer agrees to use their monthly income to fund a payment plan to pay back creditors over a period of 3 - 5 years.

Let’s Summarize…

Everything you own is an asset. Whether your property is valuable enough to turn your case into an asset bankruptcy depends on what bankruptcy exemptions you can use to protect your property. You’ll have to provide a value for each one of your assets on your bankruptcy forms. If you’re not sure whether you risk losing any of your assets in a Chapter 7 bankruptcy case, start by scheduling a free evaluation with a bankruptcy attorney in your area. 

If everything you own is covered by an exemption and your monthly income qualifies you for a Chapter 7 filing under the means test, you may not have to hire a bankruptcy lawyer if you can’t afford to. Instead, you can use Upsolve’s free web tool and Learning Center resources to prepare your bankruptcy petition and get your fresh start on your own.