Once you file for bankruptcy, most of your property becomes property of the bankruptcy estate. In a Chapter 7 filing, the following property is considered property of the bankruptcy estate:
- Property owned: All property a debtor owns when the case is filed is property of the bankruptcy estate. It is not necessary that the property should in the debtor’s possession as long as it is legally his/hers. Generally, property acquired after the bankruptcy is filed is not part of the bankruptcy estate.
- Property entitled to: The bankruptcy estate includes any property the debtor is entitled to but has not yet received. For example, tax refunds, insurance proceeds from an accident that occurred prior to the bankruptcy or accounts receivable.
- Property Acquired within 180 days after Bankruptcy: Property acquired or to which the debtor becomes entitled to within 180 days after filing for bankruptcy become part of his/her bankruptcy estate. For example life insurance or death benefit plan proceeds, inheritances, property from a marital settlement or divorce decree
- Proceeds from other Properties included in the Bankruptcy Estate: Income or profit generated from any property included the debtor’s bankruptcy estate is also be part of the bankruptcy estate. For example, rents received from an investment property that was part of the bankruptcy estate are considered property of the estate as well.
- Fraudulent Transfers: Any gift or transfer of property made other than for fair market value before filing for bankruptcy can be taken as fraudulent by the bankruptcy trustee and it can be included under the bankruptcy estate.
- Preferential Payments: A debtor cannot prefer one creditor over another in bankruptcy. Thus paying a creditor more than what s/he would have received through bankruptcy can be considered a preferential payment. The bankruptcy trustee can sue the creditor to get the payment back and administer it as property of the estate.
Both federal and state laws provide exemptions for certain properties that a debtor is allowed to claim as exempt. What property is eligible for exemption status varies from state-to-state. If property is exempt, the debtor can keep it during and after bankruptcy. If property is nonexempt, the trustee is entitled to sell it to pay the debtor’s unsecured creditors.