Do bankruptcy creditors want personal assets?

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Dear Bankruptcy Adviser,
I understand that if I file bankruptcy, the creditors do not care about small, valuable items, such as cheap and old DVD players, computers, TVs, etc. Is this true?
— Jim

Dear Jim,
That’s a fair assessment in the vast majority of cases. Your creditors do not want your old, used personal property. In most states, the court and creditors are not set up to repossess, store and then sell personal items. There are a few major exceptions, but because I don’t practice in all 50 states, you will need to confirm whether your state is one of the exceptions where personal property could be at risk.

When you seek bankruptcy protection, you are not really protecting your items from creditors, but rather the trustee assigned to your bankruptcy case. The court randomly assigns a trustee who will look at your list of assets and income stated in your bankruptcy schedules. One of the main objectives of the trustee is simple: Find and administer unprotected assets to pay your creditors.

That being said, if you have secured items such as a car, jewelry or furniture loan, those creditors can take back your items for failing to pay, but I am not discussing secured items here. I am dealing more with protecting items you own outright such as the old, paid-in-full items you discuss above.

While the bankruptcy laws are the same throughout the country, each state has different bankruptcy exemptions. These exemptions determine what you can protect from the trustee’s reach. The trustee decides, based on your bankruptcy schedules, whether you have unprotected assets.

It’s fair to say that the trustee in the vast majority of cases and in the majority of states is not looking to sell your couch or your TV. As I state, there are exceptions. For example, I have seen the trustees in Florida and upstate New York send out “personal property appraisers” to a client’s house to value everything down to the bath towels!

In most cases, the trustee is looking for assets, such as house equity, vehicle equity, investment accounts that are not qualified through the Employee Retirement Income Security Act, and bank accounts. He is also looking at any possible inheritance or litigation in which you are suing someone for money damages.

If you do file and have one or more of these types of assets and it cannot be protected in bankruptcy, you will have to work with the trustee to surrender that asset or pay to protect it. The trustee will then sell the asset or the funds you give him to keep that asset and distribute the sale proceeds to your creditors. In return, the trustee earns a fee.

The point of discussing your question is to say that the majority of bankruptcy filers will likely be able to keep their personal property. But not all filers will be able to do so. I am merely trying to point out the worst-case scenario and make sure you investigate your particular state bankruptcy exemptions thoroughly.

While I personally have seen a trustee inquire into my client’s personal belongings only a handful of times, you need to know the bankruptcy exemptions in your particular state before requesting bankruptcy protection. Once you file Chapter 7 bankruptcy, you don’t get to voluntarily back out. So you want to do your proper due diligence prior to filing, especially if you decide to file without an attorney.

Good luck.

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