The Chapter 7 Trustee’s Job.
The Chapter 7 Trustee’s job is to determine if there are any assets that a debtor owns that the trustee can sell and use the money he gets from the sale to make a payment to creditors. Once the payment is made the debtor receives a discharge from all remaining debt owed.
The Bankruptcy Estate.
When you file bankruptcy, there is an estate created. The estate consists of all the property that the debtor owns, of any kind, such as houses, cars, bank accounts, investment accounts, retirement accounts, licenses, patents. . . just about anything you can imagine. A lot of the property in the estate is exempt, meaning that even though it’s in the estate the trustee can’t sell or use it. This includes a portion of the value of your house and car; the full value of your retirement accounts; most of the household furnishings you have; your clothes (except furs and jewelry); and a number of other items. Exemptions are provided both in the Bankruptcy Code and in state law. Utah is among the states that have opted out of the federal exemptions. In Utah, exemptions are determined by the Utah state legislature.
It sometimes happens that there are some items that aren’t covered by an exemption. Sometimes these have significant value, such as boats, vehicles above the allowed exemption of $3,000; ATVs, and money in non-exempt accounts such as checking, savings or brokerage accounts that don’t qualify as retirement accounts. When this happens, the debtor has to make a choice about what to do. If she wants to file Chapter 7, she must understand that there is a risk she’ll lose the non-exempt assets. If she elects to file Chapter 13, she must pay the value of the non-exempt assets into her Plan if she wants to keep them. Alternatively, she can sell the non-exempt items and contribute the cash to her plan. In that case, the Chapter 13 looks much like a Chapter 7.
Often these are of such a small value that the trustee isn’t interested. For example, cameras, sporting goods (bicycles, golf clubs, tennis rackets) are not exempt, but trustees are not usually interested in low-value assets such as these. You’d be surprised at what a trustee might sell, though. I recently had a case where the trustee sold $325 in firearms. Here’s what happened.
My client owned five guns. Utah law says you can exempt any three of the following: shotgun, handgun, shoulder arm (rifle). My client had one shotgun, two handguns and two rifles. My client got to pick which three she kept, but had to take the other two down to the auctioneer, who put them in an auction and got $200 for the rifle and $125 for the handgun, for a total of $325.00. After deducting the auctioneer’s fee of $63.25 the trustee netted $261.25, which he will distribute to creditors.
We didn’t think the trustee would sell the guns, but I told my client that it was his decision and his alone. Liquidating assets to pay creditors is what trustees do and there are no guidelines for what the trustee can or can’t sell if the item isn’t exempt. So just because you think what you have isn’t worth anything, don’t think the trustee won’t sell it.
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