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Property of the Bankruptcy Estate


When a bankruptcy case is filed, all of the debtor’s real estate, personal property or any other asset owned by the debtor, in the name of the debtor, or in which the debtor has an interest becomes property of the bankruptcy estate — just like when someone dies everything owned becomes part of the probate or decedent’s estate. Legally, a debtor cannot do anything affecting the ownership of property of the estate without the permission of the trustee and the court. 

Property of the estate does not include a certain amount of certain kinds of property eligible for an exemption in bankruptcy. A debtor claims property exempt on the bankruptcy schedules. The bankruptcy trustee and any interested party has 30 days after the 341 meeting of creditors to object to the exemptions claimed by a debtor. 

In a chapter 7 case, a trustee may take possession of nonexempt property and liquidate it, or turn it into cash, so creditors can be paid. In a chapter 13 case, a trustee usually does not liquidate property, but the value of nonexempt property must be paid to priority and general unsecured creditors through the chapter 13 repayment plan.  

In additional to anything that a debtor owns, has his or her name on, or has a right to when the bankruptcy case is filed, property of the estate may include the following:
  • Inheritance and Life Insurance Proceeds Received by the Debtor as a Beneficiary. 
    WARNING

    It is important for a debtor to list on the bankruptcy schedules all assets (a) 
    to avoid bankruptcy fraud; (b) so exempt property can be protected; and (c) so non-exempt property, if not liquidated by the trustee to pay creditors, may be abandoned and kept by the debtor after the case is closed.
    In general, property of estate is determined as of the filing of the bankruptcy petition. Certain rights to property to which a debtor becomes entitled within 180 days after the bankruptcy filing may be included in the bankruptcy estate — for example, if someone dies within 180 days of a beneficiary’s bankruptcy filing, the debtor’s right to inheritance or life insurance becomes property of the bankruptcy estate.
  • Tax Refunds. A federal or state refund owed to the debtor as of the filing a bankruptcy case (including a pro-rated share of a current year’s refund) is property of the estate and may be used by a trustee to pay creditors if the refund is not seized by the IRS or state to pay a prepetition, priority tax liability. In chapter 13 cases, the trustee may claim that refunds received during the life of the plan are property of the estate that must be turned over to the trustee for payment to creditors.

Any nonexempt property listed in the bankruptcy schedules that the trustee does not administered, or use to pay unsecured claims, is deemed abandoned when the bankruptcy case is closed. That usually means that a debtor can keep what the trustee thinks is not worth liquidating to pay creditors. Any property not listed in the bankruptcy schedules is not deemed abandoned and remains property of the estate after closing. After the case is closed, it may be too late to list and keep property, even if it would have been exempt if included in the bankruptcy schedules. 

Here is an example of when not listing an asset — one that may be easy to overlook — can become a big problem. If a debtor has the possibility of a claim for personal injuries, that claim must be included in the bankruptcy schedules of assets, even if the debtor has not filed a claim, retained a personal injury lawyer, or filed a lawsuit. Personal injury claims and proceeds can be kept by the debtor if claimed exempt on the bankruptcy schedules. If the personal injury claim is listed and exempted in the bankruptcy, the debtor can pursue the claim after filing bankruptcy. If the personal injury claim is not scheduled and is not claimed exempt in the bankruptcy, the claim remains property of the estate instead of the debtor, is not abandoned by the bankruptcy estate, and can be pursued only by the bankruptcy trustee, not the debtor. There are cases in which a defendant or the defendant's insurer in a lawsuit by the debtor has been able to wipe out the debtor’s right to pursue the personal injury claim because the debtor did not list the claim as an asset in the bankruptcy schedules and did not claim the personal injury exemption. When in doubt — even if not in doubt — list everything!