Why Must All My Property Be Listed In My Bankruptcy?

My clients often become concerned when I tell them that we must list all of their property in the bankruptcy petition. The common fear is that they will lose their property. This is dangerous misconception, as it sometimes keeps people from filing when bankruptcy is their best option. The internet and bad information lead many scared individuals into my office.

To some degree, it is an understandable fear. If you are wiping out your debt, and in many cases not repaying any creditors, it may make sense to believe you must surrender property as a penalty. However, this could not be further from the truth. The Bankruptcy Code is designed to allow individuals a fresh start and the chance to get back on their feet.

Personal property and real estate are protected in bankruptcy with "exemptions". Exemptions, in short, "exempt" your property from your creditor's reach. These exemptions fall under state and federal law, and while they are usually not unlimited, they are normally sufficient to protect all of a bankruptcy filer's property. Exemptions can protect a wide range of property, from equity in a home, to personal items, cars, and retirement accounts. The categories are too broad to list. It suffices to say, if you own something, it can be exempted from your creditors.

However, in order to exempt and protect your property, you must first list it in detail. This is done in Schedule "B" of your bankruptcy petition. The detail required is not excessive... you do not need to list individual personal items. You don't need to catalog every last piece of silverware and every sock and t-shirt in your drawer. However, you must list large items (such as homes, cars, and retirement accounts) in some detail, and you must determine an estimated value.

The purpose of this list in Schedule "B" is NOT to provide your creditors a shopping list of things to go after. Quite the opposite, the purpose is to show what they CANNOT go after. This is because all of this listed property is exempted one schedule later in Schedule "C". In this way, your bankruptcy petition sets out what you get to keep, not what you must lose.

This all being said, the value of property owned by a debtor may sometimes exceed the exemptions, especially when it comes to the value of homes. In these case, Chapter 13 bankruptcy will still be an option. You will still be able to keep all of your property. You may, however, be required to make a repayment to some creditors. This can all be discussed in a free consultation. Contact us to set one up today.

I often tell my clients who are afraid they will lose something of value that, "I am not in the business of losing property of my clients." This is very true, but in order to be so, we need to list your property first. We list it so you can keep it!

Schedule B of the Bankruptcy Petition: Your Personal Property

The bankruptcy petition is a 40 to 60 page document submitted at the time of your bankruptcy filing. The petition provides the US Trustees and bankruptcy court with a lot of information. Specifically, you will list all of your income and expenses, all of your debt, your co-debtors, and some other financial information. You will also need to list all of your property so that it can be exempted and protected from your creditors. Property is listed on a document called "Schedule B".

Schedule B is broken down into more specific sections. In each section, you must list the appropriate property, where it is located, and an estimated current value. The Trustee will review this list at your Meeting of Creditors to verify you do not have any un-exempt property which could be distributed to your creditors. So, what type of property must you list?

Most importantly, you must list any real estate that you own, including your home and any rental properties. You must also list any burial plots or undeveloped pieces of land. The value of your real estate for bankruptcy purposes is what you would likely sell the property for in the current real estate market. It will sometimes be necessary to obtain an appraisal in order to list the value accurately. It should be noted that you CANNOT use assessed tax values to determine the value of your home. It is very important to list all real estate, as you will be asked under oath whether all of your real estate is listed. Failure to disclose all of your real estate could lead to charges of perjury.

A second category of property it is important to list is all of your vehicles. This includes not only vehicles you own outright with a title, but also vehicles with payments or leased vehicles. You must also disclose all other types of vehicles, such as motorcycles, tractors, and boats. To determine the value of a car, we will usually use its Kelly Blue Book value. Boats and tractor values can usually be determined with some online research.

Personal property is also listed in Schedule B. This includes furniture, household items, electronics, clothes, jewelry, hobby equipment, and collectibles. There is no need to worry about losing any of this property, because while it must be listed, it can also be exempted from your creditors, and thus there is no way you will lose any of it. Listing it is mostly a formality, but necessary.

Finally, you must list all financial, retirement, and business accounts. This includes, but is not limited to, retirement accounts (such as 401(k)s, pensions, and IRAs), checking, savings, and credit unions accounts, stocks or interest in a business, and life insurance policies. You must also list any potential lawsuits, inheritances, and insurance or legal claims. These things are not always typically thought of as "property". But, for bankruptcy purposes they must be thought of as such.

Your attorney will review Schedule B with you, line-by-line, helping you to list all of your property, and its value. Property is then exempted and protected from your creditors in Schedule C. When in doubt as whether or not to tell your bankruptcy attorney about a piece of property... tell them. Better safe than sorry. The more accurate you can be, the better.

Contact us if you have any questions about protecting and keeping your property in a bankruptcy. I will be happy to discuss your situation in a free consultation. 

The Broad Definition of "Real Property" in Bankruptcy

"Real Property" in bankruptcy must be disclosed in your bankruptcy petition under Schedule A, and protected from your creditors with exemptions in Schedule C. In short, think of real property as land, and anything you would building on land. This is separate from "personal property", which includes things such as cars, household items, savings accounts, and pretty much anything else you can imagine.

The most common real property in bankruptcy is the Debtor's home. This is probably the classic definition of real estate in the minds of most people. Of course, you must disclose your primary residence in your bankruptcy petition, and exempt it using the "homestead exemption", which allows debtors to protect their equity in their home from creditors. You must actually live in the home in order for it to qualify for this exemption, hence the "homestead". If you are not living there (for instance, you want to keep the home, but you are living out of town in an apartment for work), this bankruptcy exemption is not available.

It also is not surprising to most that rental properties are considered to be real estate. Rental properties with equity must also be exempted in bankruptcy, often times using the "wild card" exemption. This exemption is limited, so you may be required to file a Chapter 13 bankruptcy in order to keep a rental in bankruptcy. Regardless, rental properties are  also clearly real estate.

What about campgrounds or undeveloped property? This is where some debtors begin to believe the property is not "real estate", but it certainly is! Fractional ownership in a camp ground or undeveloped property also must be disclosed and exempted in bankruptcy. So, if you and 3 cousins each have a 1/4th interest in a campground worth $30,000, you have a $7,500 interest in that real estate. You don't want to leave this out... the trustee will do property searches, and failing to disclose the property could lead to perjury charges. You must disclose it and exempt it.

Condos and mobile homes are also considered to be real property, and must be disclosed in bankruptcy. Once again, this leads to confusion for some filers because they think of real estate as traditional brick and mortar properties, and they don't think in terms or condos or trailers. The good news is, if you live in the condo or mobile home, you can use the more generous homestead exemption to protect the property, even though it may not be a traditional "home". If in doubt, tell your bankruptcy attorney about all property while preparing your petition, and he or she will help you determine its status.

Finally, and most confusingly of all, burial plots are considered real property. This is especially confounding for many filers, as they think of real estate as a home, a place where you live. But, keep in mind the broad definition of real property given above... land, or anything you build on land. A burial plot qualifies. Normally, this is not a problem, as burial plots have limited value. But, it is best to disclose everything and exempt it from your creditors.

If you have any confusion about what is "real property" and when it can be protected from your creditors, contact us to set up a free consultation. We'll be happy to discuss your situation and make sure you keep your real estate.