What Property Do I Give Up in a Chapter 7 Bankruptcy?
In a Chapter 7 bankruptcy, a debtor’s assets must be turned over to a court-appointed trustee. Certain assets are exempt under Florida law, including up to $1,000 of equity in a motor vehicle and a $4,000 “wildcard” exemption that may be used for any property if the debtor does not claim a homestead exemption for their residence. An experienced Orlando bankruptcy lawyer can advise you on all Florida exemptions and how they may benefit you.
Tampa Couple Ordered to Turn Over Car Insurance Proceeds
It is important to consult with a bankruptcy attorney before taking any actions that may affect your case. For example, if you receive any money after filing a Chapter 7 petition, those funds may be considered part of your bankruptcy estate and must be given to the trustee. A recent bankruptcy case from Tampa illustrates the consequences of failing to do so.
This case actually started out as a Chapter 13 bankruptcy but was later converted to Chapter 7. In a Chapter 13 case, the debtor submits a payment plan that is approved by the court. If for some reason the court does not confirm a payment plan, the bankruptcy is converted to Chapter 7, where the debtor’s non-exempt property is simply liquidated and any remaining unpaid debts are discharged.
In this case, the debtors-a couple filing for bankruptcy together-filed a Chapter 13 petition. Their petition listed two motor vehicles as assets, including a truck they valued at $10,000. The debtors further claimed a $2,695 exemption in the value of the truck.
After the debtors filed their petition, they were in an accident that resulted in a total loss of the truck. The truck was insured. The policy was actually purchased after the Chapter 13 petition was filed using “post-petition income.” The debtors received more than $17,000 from the insurance policy, which they used to purchase and repair another used vehicle.
About a month after the accident, the debtors converted their case from Chapter 13 to Chapter 7. The debtors never informed the Chapter 7 trustee about the insurance money. When the trustee learned about it, she filed a motion to force the debtors to turn the proceeds over, including any non-exempt value in the vehicle they purchased with the money. The debtors objected, arguing the insurance benefits were not lawfully part of their Chapter 7 bankruptcy estate.
The bankruptcy court disagreed and sided with the trustee. The court said the insurance policy “served to protect both the Debtors and the bankruptcy estate, to the extent of its value in excess of Debtors’ claimed exemption.” In other words, the debtors were only entitled to keep the insurance proceeds for the amount of their pre-existing exemption in the truck, which was listed as $2,695 on the original Chapter 13 petition. The remainder of the insurance money-$14,506-belonged to the bankruptcy estate.
Bankruptcy exemptions can get complicated quickly. This is why you do not want to attempt a Chapter 7 or Chapter 13 bankruptcy on your own. Contact the Law Offices of K. Hunter Goff, P.A., today at (866) 598-5660 if you would like to schedule a free consultation with a dedicated bankruptcy attorney who can help with your situation.