The letter K is for the stuff you keep through bankruptcy.
The cartoon image of someone going through bankruptcy has them wearing a barrel instead of clothes.
It’s a funny image but it’s not real.
Most debtors keep far more of their assets than you’d image.
Exemption law protects assets
The Bankruptcy Code and the law of each state carve out assets that a person can keep, despite owing money to creditors.
That property is exempt, in the language of the law.
The debtor keeps it, notwithstanding judgments or bankruptcy.
Possessions with little value
Some possessions you keep through bankruptcy simply because they have little or no value.
The bankruptcy trustee’s job is to gather up assets that he can sell to generate funds to pay creditors.
If something has no value in the marketplace, the trustee is not interested.
Put in this category family photo albums, used clothes, junker cars. It would cost the trustee more to pay someone to pick it up than he could get by selling.
Property with legal entangements may fall into this category: environmental problems, title issues, foreign location.
Assets excluded from bankruptcy estate
Some possessions you keep because they are not “property of the estate” as defined in the bankruptcy code.
Pension plans and 401(k) accounts are the biggies, here.
Because these take the form of a trust with an provision limiting creditor access to the funds, they don’t come into the estate at all. Creditors, other than the IRS, can’t touch them.
And then there are the assets you keep that have substantial value, but are subject to liens that cover all of the value of the asset. If such assets were sold, the lien holders must be paid off in full before there would be anything left for the bankruptcy trustee to pay to creditors.
It is usually the existence of liens that allow debtors who appear to have house, cars, vacation property, etc., to sail through bankruptcy without losing anything. The owner has already bargained away the value in the asset, keeping just legal title and the right to possession.
Keep on keeping on
So, keep your chin up. You will probably keep far more through a bankruptcy case than you imagine.
Consider that my friend and newly coined California consumer protection lawyer Jay Fleischman thinks “K” is for keys in the bankruptcy alphabet.
Image courtesy of be.mosaic.