What happens in a chapter 7 bankruptcy case if the trustee can sell the debtor’s property?
There may be circumstances when a person would rather file for chapter 7 and allow the trustee to sell an asset, instead of keeping the asset and filing a chapter 13. If a debtor files a chapter 7 he may still receive an order of discharge of his debts. Therefore the trustee is able to sell an asset if the debtor meets the criteria for a chapter 7 discharge.
The criteria for a chapter 7 discharge is the following: The debtor must meet the Means Test or Current Monthly Income Test. In other words, the debtors’ household income for the six months prior to the filing must be less than New Jersey’s median income of a household of the same size. If the debtor’s household income is greater than the state’s median income, he may still meet this criteria under certain guidelines. If the debtor’s average household net income for the six months prior to the filing is less than the debtor’s household’s average necessary and reasonable monthly expenses for this same time period they can qualify. The expenses must be permitted under the Internal Revenue Service Code.
Additionally, the debtor’s projected future monthly household net income must be less than the debtor’s projected monthly necessary and reasonable household expenses. If the debtor meets the criteria explained above, he will receive a discharge of debts within the normal time period, which is about 3 1/2 months after the filing.
The amount that is due to the trustee is based on non exempt assets. In other words, if the debtor is unable to apply his exemptions towards the fair market value of any property, the trustee is entitled to the value of the property that is unable to be fully exempted.
Example: A debtor has a third auto valuing $10,000.00, with only $4,000.00 of remaining exemptions to apply to the auto. In this example, the debtor must either allow the trustee to sell the auto and keep $6,000, or work out a settlement with the trustee to pay him $6,000.00 over a specific time period. Typically, the trustee will work with the debtors’ attorney to resolve the amount that is due and the manner in which the payments will be made.
If the debtor wishes to avoid these issues, he may be able to file a chapter 13, keep the third auto, and pay an additional $6,000.00 to the creditors, through a monthly bankruptcy plan.
Please contact Robert Manchel, NJ bankruptcy attorney, at 1 (866) 503-5655, for a free consultation on bankruptcy protection could be applied to your personal circumstances.