What is the debtor’s bankruptcy estate from the perspective of a Stone Park bankruptcy attorney?
When someone files a bankruptcy, you may hear a term called the bankruptcy estate. It sounds confusing however it’s pretty simple and what the bankruptcy estate is is the property that the debtor may hold. The property that a debtor may hold can be any interest in real estate, in personal property, or in any kind of accounts. So for instance, property that belongs in a bankruptcy estate is someone’s house, someone’s car, someone’s 401(k) plan, someone’s furniture in their household, their clothes, anything that is owned or anything that the debtor may have an interest in can be a property of the bankruptcy estate. Any proceeds from any kind of earnings from stocks or bonds can be also a property of the Illinois bankruptcy estate.
What is important to understand is that when you file a bankruptcy specifically in a Chapter 7 and in all the other bankruptcies as well however particularly this creates an estate that can be held by the trustee. The trustee is the manager of the case and is the person who has the power and the duty to move your case along and recommend a discharge in debt or recommend a confirmation of a bankruptcy Chapter 13 plan.
So once the day of the filing occurs, whatever assets and property that the debtor may have is going to be included in the bankruptcy estate. And at that point, the trustee is the person who holds the power to distribute any assets and property of the bankruptcy estate. So for instance, if a debtor has a car that is paid off and worth $5000 fair market value of $5000, then that value is part of the bankruptcy estate and the trustee has the power to liquidate that car meaning the trustee has the power to sell the car and pay off creditors with the proceeds of the sale.
This might scare a few clients and debtors however everybody has an exemption for your personal property, your real property and your assets. So an exemption is a tool that allows a person to protect any equity in a property. So if there is equity on value to a property for instance, $5000 in a motor vehicle, then in the state of Illinois, you can receive a $2400 exemption in your equity specifically for your car. Now, what this means is instead of your car being valued at $5000, it is now valued at $2800 because you are subtracting your exemption which you get to keep of $2400. So if the trustee decides to sell your car, you would get $2400 of an exemption so that money would be given to you, however, the rest of the money would go to any creditors. In most circumstances, we would be able to exempt the whole value of your car because you have other exemptions such as the wild-card exemption which is $4000 which can be stacked on top of your vehicle exemption and would either wholly protect your car or protected to the point where the trustee would not liquidate the vehicle because it’s not worth it for him to do that. In many circumstances this occurs where there is not enough equity in the value for the trustee to pay somebody to sell the property and then to distribute it to creditors. There’s too much work for the trustee to do that and not enough money for the trustee to really pay back a portion to the creditors who file a proof of claim bankruptcy.
So, the bankruptcy estate is all the property that a debtor may have and that would include real estate, personal property, and any kind of accounts of the financial nature; 401(k)s, life insurance policies, pensions, these are all properties of the bankruptcy estate.