Chapter 7 No-Asset Bankruptcy

People who don't lose property in Chapter 7 have a "no-asset" Chapter 7 bankruptcy case. Having a no-asset bankruptcy case doesn’t mean you don’t own anything. It means bankruptcy exemption laws protect all your assets, leaving nothing for the Chapter 7 trustee to sell to repay your creditors. Most Chapter 7 cases filed by individuals fall into this category.

In this article, you'll learn what a no-asset case is, whether you can file without assets, how to tell if you have a no-asset case, what "exempt property" means, and the advantages of a no-asset Chapter 7 bankruptcy. If you have any concerns about property in your case, a bankruptcy lawyer is best positioned to review your situation and explain your options.

What Is a No-Asset Chapter 7 Bankruptcy?

A no-asset bankruptcy means the filer doesn’t lose any property in Chapter 7 bankruptcy because the filer can protect all of their property using bankruptcy exemptions. When the trustee can’t sell any property, creditors don’t receive any money, making it a no-asset Chapter 7 case.

Having a no-asset case doesn’t mean that a debtor owns nothing, is homeless, or lives in poverty. It simply means the debtor's assets are protected or covered under exemptions. In most no-asset cases, the court tells creditors not to file a proof of claim, the form creditors use to ask for payment, because there won’t be any money to distribute.

Can I Declare Bankruptcy If I Don't Have Assets?

Yes. Although owning property is common, assets aren't required to file for Chapter 7 bankruptcy. You likely have personal items you can protect with a bankruptcy exemption, and you’ll list those items in a no-asset Chapter 7 bankruptcy case. You’ll still need to qualify for Chapter 7 by passing the means test, which compares your income to your state’s median. (11 U.S.C. § 707(b).)

Example. Alexa incurred $35,000 in credit card debt during college, but when she didn’t land the high-paying job she expected after graduation, she moved back in with her parents, bringing nothing more than her clothes, phone, and computer. If she files for Chapter 7 bankruptcy, she’ll list the minimal property she owns in the bankruptcy case.

At the 341 meeting of creditors—the one meeting all filers attend—the Chapter 7 trustee appointed to her matter will likely ask why she didn’t list more property and accept her answer without an issue. Learn about questions to expect at the 341 meeting of creditors. (11 U.S.C. § 341.)

How Can I Tell If I Have a No-Asset Chapter 7 Bankruptcy?

You have a no-asset Chapter 7 bankruptcy if all your assets are “exempt,” or protected under bankruptcy law. To find out, you’ll need to know your property’s value and the available exemptions.

For instance, it's possible to own a car, house, and more, and still have a no-asset case if all of the property equity is covered with bankruptcy exemptions. Find out about keeping a home in Chapter 7 bankruptcy. The table below shows how a no-asset case differs from an asset case.

Your case starts as a no-asset case based on the property you list, but it can change. For example, if you inherit money or receive a life insurance payout or divorce property settlement within 180 days after filing, the trustee can claim it for creditors. (11 U.S.C. § 541(a)(5).)

What Is an Exempt Asset in a Chapter 7 Bankruptcy Proceeding?

An exempt asset is property protected by a bankruptcy exemption, and you get to keep it in Chapter 7. The trustee can only take and sell property that is not exempt for the benefit of your creditors.

Because bankruptcy is supposed to give you a fresh start and not leave you entirely destitute, federal and state laws allow you to keep specific property. For example, personal goods, homesteads, and motor vehicles are usually exempt up to a certain amount, and qualified retirement accounts are generally exempt property.

Your state decides whether you must use the state bankruptcy exemptions or if you can use the federal bankruptcy exemptions instead. If you aren’t sure what you can keep, a bankruptcy attorney can help. (11 U.S.C. § 522.)

Advantages of No-Asset Chapter 7 Cases

The main advantage of a no-asset case is that you erase qualifying debt without losing property. Two other benefits also stand out.

Faster Case Closing

Your bankruptcy case will move more quickly and close sooner because the trustee won’t need to keep it open to sell property. However, it won’t hasten the debt discharge because the discharge doesn’t depend on property sales, and you receive it before the case closes.

Forgotten Debts Usually Don’t Matter

If you forget to list a qualifying debt, your bankruptcy court will likely still discharge it because, in no-asset cases, none of the creditors receive anything. While most bankruptcy courts follow this approach, a court won’t discharge the debt if the unlisted creditor can prove you left it off as part of a fraud. (11 U.S.C. § 523.)

To learn more, see What happens if I forget to list a debt in my Chapter 7 bankruptcy?

What If I Don’t Have a No-Asset Chapter 7 Bankruptcy?

If you have an "asset" case, the trustee will instruct creditors to submit proof-of-claim forms for payment, sell any nonexempt property, and distribute the proceeds to creditors.

If you stand to lose property in Chapter 7 that you’d like to keep, you can buy it back from the trustee or file for Chapter 13 instead. Trustees will often sell you the nonexempt equity for less than a sale would bring, and many will deduct the sales costs they’d avoid.

Otherwise, consider filing for Chapter 13 bankruptcy. In Chapter 13, you can keep all of your property because the Chapter 13 bankruptcy trustee doesn’t get paid to sell assets for the benefit of creditors. Instead, you’ll pay creditors at least the value of nonexempt property through your Chapter 13 repayment plan. (11 U.S.C. § 1325(a)(4).)

Learn about calculating a Chapter 13 plan payment.

Next Steps in Your Bankruptcy Case

Filing for Chapter 7 and eliminating debts without worrying about losing property can be a great way to get a fresh financial start. Start by listing your property and checking it against your exemptions, then talk to a bankruptcy lawyer if anything isn’t covered. If you'd like more information about the Chapter 7 process, here are your next reads:

• Will I Lose All My Property If I File for Bankruptcy?
• Running Up Credit Card Debt Before Bankruptcy: Is It Fraud?