What Are Non Exempt Assets in Bankruptcy?

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Non exempt assets in bankruptcy are those assets you do not get to keep when you file a Chapter 7 bankruptcy. To understand what assets are non exempt, you need to understand how chapter 7 bankruptcy works.

Non Exempt Assets in Bankruptcy

In a chapter 7 bankruptcy, the court will seize all non exempt assets and they will then assign a trustee to sell those assets. The trustee will sell the assets and use the proceeds from the sale to pay off your creditors. Any outstanding balance that you owe to your creditors after the assets are sold will be forgiven, with the exception of certain debts such as student loan debt, tax debt and unpaid judgments or child support which may not be dischargeable in bankruptcy. Chapter 7 bankruptcy was long the traditional form of bankruptcy, but it has become more difficult to qualify with changes in the bankruptcy law that require you to pass a means test.

Since your creditors only get paid from the sale of your assets, you may wonder why they don't just take everything. Bankruptcy is designed to give people a fresh start and a way out of financial strife when the situation becomes dire. As such, the laws recognize that if the courts took everything, bankruptcy wouldn't really be a way out at all. As such, certain assets are exempt from seizure. However, other assets are non exempt and they are taken.

Examples of exempt assets include:

  • Some home equity (each state sets its own limits for how much home equity you can exempt)
  • Most pension and retirement funds (including 401Ks and IRAs)
  • An inexpensive car (rules vary by state)
  • Most wedding bands or inexpensive jewelry (the jewelry must be below a certain threshold. Engagement rings can be seized)

Any assets that are not considered exempt are up for grabs. Examples of non exempt assets include:

  • Expensive watches or jewelry
  • Consumer goods and electronics, such as appliances or televisions
  • Luxury automobiles
  • Bank accounts

It is not a good idea, if you are facing bankruptcy, to try to convert non exempt assets into exempt assets... in fact, doing so is fraud and you could end up having your bankruptcy claim dismissed, or worse.

Get Legal Help

If you have a question about which of your assets are exempt and which are non exempt and subject to seizure, contact an experienced bankruptcy law attorney. He can guide you through the bankruptcy process and help you to determine which type of bankruptcy is right for you.