When you file for any kind of bankruptcy a bankruptcy estate is created. This is a legal concept that means some of the property you own is under the control of the bankruptcy court while your case is processed. In a Chapter 7 bankruptcy typically almost all of your property or assets are part of the bankruptcy estate. Different chapters of bankruptcy have different effects.
Does that mean if I file bankruptcy I lose everything?
The bankruptcy court administers the property in the bankruptcy estate, but you remain the owner of all of the property unless the court enters an order for you to sell or turnover some property. All of the property in the bankruptcy estate is also sheltered from creditor actions by the automatic stay.
If you owned a car, but were behind on the payments and you filed for bankruptcy the creditor would not be allowed to repossess the car because of the automatic stay. The car would be a part of the bankruptcy estate. But, the court would ultimately decide whether or not you got to keep the car based on a variety of factors.
Most people who file for bankruptcy find that they do not lose anything because the value of their assets is so low.
Can I sell my property during a bankruptcy?
While you remain the owner of the property during a bankruptcy, the bankruptcy court controls all of the property that is part of the bankruptcy estate. You are not allowed to sell any of the property that is part of the bankruptcy estate without the prior approval of the bankruptcy court. Usually, the bankruptcy court appoints a trustee to monitor the administration of the bankruptcy estate. The bankruptcy trustee is charged with making sure the creditors get what they are legally entitled to.
This means that if you own a car and file for bankruptcy, and you own the car outright, you cannot sell the car or even give the car away, without first getting the permission of the bankruptcy trustee. This also applies to stocks, jewelry, or any other kind of property.
Property can be removed from the bankruptcy estate if certain conditions and procedures are met.
Is there ever anything not part of the bankruptcy estate?
The law excludes some property from being a part of the bankruptcy estate. Social Security payments, generally any property received after the filing of the bankruptcy, and certain pension or retirement benefits are not a part of the bankruptcy estate and are not subject to any control from the bankruptcy court.
What happens once the bankruptcy is over?
Once the bankruptcy has been completed the bankruptcy estate disappears. Any property that was not ordered to be sold or turned over to a creditor is back under your control. For most people almost nothing ends of being sold. Once the bankruptcy is completed you can sell or gift your property as you see fit.
Bankruptcy is a highly technical area of law with many complicated rules and procedures. If you are thinking about filing a bankruptcy, you need to consult with an experienced bankruptcy lawyer right away. Sometimes the rules of the bankruptcy estate apply to what you do with property before you even file for bankruptcy.