Property which isn’t protected in bankruptcy is known as non-exempt property. This doesn’t mean that you will lose everything you own in life when you file for bankruptcy. The entire purpose of bankruptcy filing is to offer a fresh start to people who have had some financial troubles. As per your state’s exemption statutes, you can protect all property listed in it as well as things you will require to maintain a home, such as:
- Modest amount of equity in car
- Household fixtures and clothes
- Tools needed for your profession
- Your retirement account
As per Los Angeles based law firm Recovery Law Group any property that is not mentioned in the exemption list comes under non-exempt property. The course of action taken for non-exempt property depends on the chapter under which bankruptcy is filed.
Fate of Non-Exempt Property in Chapter 7 Bankruptcy
When you file for bankruptcy under chapter 7, the court appointed bankruptcy trustee sells your non-exempted property to pay off your creditors. The trustee uses the sale proceeds to clear any pending bills as per bankruptcy laws. Priority is given to domestic support (child or spousal support) and tax debt. In case there are no priority debts, the non-priority unsecured debts like credit card balance, utility bills and personal loans are paid off by the trustee.
Fate of Non-Exempt Property in Chapter 13 Bankruptcy
The non-exempt property is not sold off by the trustee in this case, but you are expected to pay your unsecured creditors, an amount equal to the value of your non-exempt property. Unsecured creditors are those whose dues aren’t assured by collateral. For example, if you are unable to exempt an asset or a timeshare of half its value, you will be required to pay your unsecured creditors an amount which is the sum total of both, over a 3-5 years repayment plan.