The majority of people who file for Chapter 7 bankruptcy have what is often referred to as no-asset Chapter 7 bankruptcy cases. In a no-asset Chapter 7 case, you don't have any property that the bankruptcy trustee can take and sell in order to repay your creditors. Yours can be a no-asset Chapter 7 even if you own property -- that's because if all of your property is exempt, then the trustee cannot take it.
Below you can learn more about no-asset cases, what it means to have exempt property, and some of the advantages of no-asset Chapter 7 bankruptcies.
Chapter 7 Bankruptcy Basics
Debtors who file for Chapter 7 bankruptcy can eliminate almost all of their debts once a discharge is entered at the end of the case. In return, debtors may have to give up some property so that the bankruptcy trustee can sell it and distribute the proceeds to unsecured creditors. (Learn the basics of how Chapter 7 bankruptcy works.)
Because bankruptcy is supposed to provide you with a fresh start, and not leave you completely destitute, both federal and state law allow you to keep certain property -- the laws that delineate which property you can keep are called exemptions. Some exemptions allow you to keep property no matter what the value; others allow you to exempt up to a certain dollar value. For example, personal goods up to a certain dollar value, homesteads, amounts up to a certain value in a bank account, or retirement accounts, are all examples of exempt property. (Learn more about exemptions in Chapter 7 bankruptcy.)
The trustee can only take from you property which is not exempt, or which has a dollar value above the exemption limit provided by the law.
A debtor may also have property with value, but which also has a lien on it. A common example is a vehicle. If a debtor has a car loan and the balance of the loan is equal to or more than the value of the vehicle, the vehicle has no value to the trustee. In that situation, the debtor will be able to keep the car.
The No-Asset Bankruptcy
A no-asset bankruptcy is not a legal term, but instead a phrase that is used to describe debtors who file bankruptcy with no property that can be taken by the trustee. It does not mean that a debtor has no assets, is homeless, or living in poverty. It simply means that the debtor’s assets are all protected or covered under exemptions, or that the debtor’s assets that are not exempt do not have monetary value.
In order to determine if your bankruptcy will be a no-asset case, you must know how much your property is worth and what exemptions are available to you. Those might be state exemptions or, in some cases, federal exemptions (some states allow debtors to choose between the state and federal exemptions; others require the debtor to use the state exemptions). (Visit our Bankruptcy Exemptions page to find the most common exemptions in your state. You can also find the federal bankruptcy exemptions.) Sometimes it's difficult to figure out the value of your property and/or the exemption amount available to you. A bankruptcy attorney can help.
Some Features of No-Asset Chapter 7 Cases
Here are some features of no-asset Chapter 7 bankruptcies.
Your bankruptcy case will move more quickly, and you'll get your discharge faster in a no-asset case than if the trustee must investigate, and possibly sell, your property.
Debts From Unlisted Creditors Will Be Discharged
When you file for bankruptcy, you must list all of your creditors on your bankruptcy schedules. All debts that you list will be discharged at the conclusion of your case.(other than those debts which legally may not be discharged in bankruptcy).
If you had assets or property which could be taken by the trustee in your bankruptcy, in the event that you forget to list a creditor or a debt on your schedules, the debt of the creditor that you did not list is still valid and enforceable even after the discharge is entered. (To learn more, see What happens if I forget to list a debt in my Chapter 7 bankruptcy?)
However, with a no-asset bankruptcy, many states and federal jurisdictions will still consider the omitted creditor's debt as being discharged, even though you never listed it in the bankruptcy. Because the omitted creditor wouldn't have received any money or property in the no-asset bankruptcy even if they were listed, many courts don't require debtors to reopen or refile their bankruptcies to discharge debts that were not listed. The no-asset bankruptcy in effect discharges not just your listed debts, but even those that you did not list.
What If Your Assets Are Not Exempt?
If you stand to lose property in Chapter 7 that you would like to keep, consider filing for Chapter 13 bankruptcy, which allows you to keep most, if not all, of your property. (Learn how Chapter 13 bankruptcy works.) Or, in your Chapter 7 bankruptcy, you might be able to pay the trustee an equivalent amount in order to keep the property. This is obviously not an option if the property is worth quite a bit.