If a creditor taps your bank account, you have a few options to protect your money.
What is an asset case?
An asset case is a type of Chapter 7 bankruptcy in which a person has assets and cash to pay creditors. Instead of having all debts wiped clean without paying anything, the debtor must turn over some or all assets to pay the claims of creditors.
Many debtors file Chapter 7 bankruptcy, which requires liquidation of assets to pay debts.
However, most filers have a no-asset case, which means they don’t have enough property, cash or other assets to pay their creditors. Asset cases are those with filers who have assets they can sell to pay their debts.
Bankruptcy law allows debtors to keep assets up to a certain limit, exempting them from liquidation.
Even so, debtors must disclose all their assets when they file, and the trustee in charge of the case reviews the information to determine what can and can’t be kept.
For their part, unsecured creditors must file claims for payment within 90 days after the creditors’ meeting, while government entities have 180 days. Once the bankruptcy case is filed, the trustee becomes the temporary owner of all the filer’s assets.
To be sure, asset cases are rare because most people don’t have much left to sell by the time the bankruptcy is filed. For many filers, their amount of debt exceeds the value of their nonexempt property, meaning they stand to gain more than they lose.
Additionally, some debts are not discharged under bankruptcy, meaning filing an asset case and liquidating property might be the only way to avoid additional legal actions such as wage garnishments or lawsuits.
Asset case example
Joseph files for Chapter 7 bankruptcy protection. For work purposes, he wants to keep his truck, which he owns free and clear.
Even when debtors have property in an asset case, such as real estate or vehicles, they don’t have to sell everything they own to pay back their creditors. Instead, federal and state laws allow some property, or a portion of it, to be exempt.
For example, in Joseph’s state, up to $3,375 of a vehicle’s value is exempt, meaning he can keep the vehicle if it’s worth less or if he pays the difference to the trustee.
The value of Joseph’s truck is $4,500, so he pays $1,125 to the bankruptcy trustee to keep his truck.