Bankruptcy basics
The bankruptcy estate
What goes into the estate when a case is filed, what the trustee does with it, and what exemptions keep out of it.
The bankruptcy estate holds your property interests
Federal law creates it the moment your case is filed, in either chapter.
It takes in all of your property interests, with very limited exceptions, wherever they are and whatever they are worth: your home, your car, your clothing, money someone owes you, an injury claim you have not filed yet.
If you co-own something, only your share goes in, not the other owner's.
The automatic stay bars creditors from placing a lien on estate property, freezing it or garnishing it.
A trustee is appointed in both chapters, with a different job in each
In Chapter 7, the trustee sells what is not protected
Chapter 7 is a liquidation proceeding. The trustee takes control of the estate and decides what property has to be turned over to be sold.
Until then you keep your things and have to safeguard them. A trustee who finds nothing of value to the estate files a no-asset report.
Understand Chapter 7 →In Chapter 13, the trustee administers the plan
Chapter 13 is a reorganization. You keep possession of your property, and the estate protects it from creditors.
The Chapter 13 estate also takes in your income, earned or unearned. The trustee checks that the case complies with the Bankruptcy Code, collects your payments and pays your creditors.
Understand Chapter 13 →The estate can reach property from before and after the filing date
Property you transferred before filing
The Bankruptcy Code lets the estate recover certain property transferred for less than market value (a fraudulent transfer) and money paid to certain creditors (a preferential payment).
In Chapter 7 the trustee can recover that property and sell it. In Chapter 13 it is counted in the liquidation test and can raise what your plan has to pay.
The liquidation test means your general unsecured creditors must receive at least as much as they would in a Chapter 7.
Property you receive after filing
In Chapter 7, the estate is entitled to an inheritance, property from a marital property settlement, or life insurance proceeds acquired within 180 days after the filing date.
In Chapter 13, the estate takes in the property you acquire while the case is pending, and may be entitled to money you come into.
Exemptions protect property from the bankruptcy estate
Exemptions are laws that shield a limited amount of value in certain assets from the estate.
In Illinois we use the Illinois exemptions and those in other federal laws, such as the Social Security Act. The Bankruptcy Code's own exemptions are not available to Illinois residents.
In Chapter 7, an exemption keeps that value from being distributed to your creditors. In Chapter 13, it keeps that value out of the liquidation test.
Illinois law protects a set amount of equity in a home, a car and belongings. There are also exemptions for qualified retirement benefits, Social Security benefits, veterans' benefits and workers' compensation benefits.
We check yours before you file, not after.
More bankruptcy basics
We go through what you own before you file
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This page is general information, not advice about your case.