What is a No Asset Case in a Chapter 7 Bankruptcy?

A no asset case in a Chapter 7 bankruptcy is the usual goal for a debtor. Why? A no asset case means you have no financial obligation to the bankruptcy estate. Unlike a Chapter 13 bankruptcy where you must make payments for three to five years.

Who Makes the Determination of a “No Asset” Case?

The Chapter 7 Trustee will make the determination. When your Chapter 7 bankruptcy case is filed, a Trustee will be appointed. The Trustee will look at all of your assets listed in the bankruptcy schedules, your recent tax returns, bank accounts, and your answers on the Trustee Information Sheet. The Trustee will also consider input from creditors at the meeting of creditors or otherwise.

The Trustee is looking for non-exempt assets. Therefore, it is necessary to properly claim exemptions for qualified property in Schedule C. Exempt assets cannot be required to be turned over to the Trustee.

Typical non-exempt assets include upcoming tax refunds, 20% of net wages owed at the time of filing, and non-exempt amounts in bank accounts. Pre-bankruptcy planning by your bankruptcy attorney may include waiting to file until you receive and spend your tax refund.

Less typical are home equity and vehicle values beyond the exemption amount. This is becoming more common as an asset, however, due to skyrocketing home and used car prices.

Do You Always Want a No Asset Case?

Sometimes it is better to file the case even though there may be assets to administer. Filing to stop a wage or bank garnishment is an example. Another is you may owe taxes that are non-dischargeable. Taxes are often given priority in distribution. Hence, the money that is paid into the estate can be used to pay off the taxes that are owed.

In any event, you need an experienced bankruptcy attorney to determine the time to file and the necessary pre-bankruptcy planning.