No-Asset Case

Under the Bankruptcy Code, there are six basic types of bankruptcy chapter cases that a debtor can choose from when filing for bankruptcy. But among these bankruptcy chapters, Chapter 7 which is also entitled as the Liquidation Bankruptcy is the most common type of bankruptcy chapter filed for in the U.S. Most of these cases are also called as a no-asset case. So what exactly is a no-asset case in bankruptcy?

No-Asset Case

Understanding how Chapter 7 bankruptcy works

Since Chapter 7 bankruptcy is all about liquidating a debtor’s assets to pay their creditors, all of their assets automatically become the bankruptcy estate’s property. On the other hand, a trustee may not liquidate some of the debtor’s assets if those assets are tagged as exempt. Since exempted assets are kept by the debtor, then trustees won’t have anything to sell to pay off the debtor’s creditors. This is where the no-asset case in bankruptcy comes in.

No-asset case in bankruptcy

When a Chapter 7 bankruptcy case becomes a “no-asset” case, it only means that 1) a debtor was able to exempt all of his/her assets by filing an exemption or 2) the debtor has very little or no nonexempt property at all that can be liquidated. The no-asset case terminology doesn’t necessarily mean that a debtor is homeless, has no assets at all, or is living in property. It only means to say that the debtor has all or most of his assets covered and protected under federal or state exemptions. In some cases, those nonexempt assets that a debtor may have have little or no value at all so the bankruptcy trustee will choose not to sell them at all. In turn, debtors can still retain their nonexempt properties.

Therefore, a no-asset case only means that a debtor do not have any more non-exempt asset like cash, properties, or other valuables that the bankruptcy trustee can liquidate to pay off creditors. This makes the Chapter 7 bankruptcy cases more straightforward and is also the major reason why most cases filed under Chapter 7 are no-asset cases.

Determining whether a Chapter 7 bankruptcy petition is a no-asset case

Debtors can easily determine whether or not their bankruptcy petition is a no-asset case by looking at a few factors.

The first thing to consider is that by law, debtors are allowed to keep their properties through “exemptions”. An exempt property cannot be taken by bankruptcy trustee so the debtor gets to keep them. The logic behind offering exemptions is that bankrupt people need a certain amount of asset like properties, cash, and other similar valuables to make a fresh state. Bankruptcy exemptions makes sure of that although the matter of exemptions vary from state to state. When debtor wisely files his/her bankruptcy exemptions and manages to maximize exempting most of their properties, then the bankruptcy trustee will have to file a report with the bankruptcy court for a “no-asset case”.

Because of the straightforward nature of no-asset Chapter 7 bankruptcy cases, debtors can expect a faster bankruptcy discharge. This is because creditors won’t have to file proofs of claim because there is nothing to distribute and trustees do not have any asset or property to investigate and sell in the process.