Asset

Asset summary:

• An asset is anything you own (or own an interest in) that has value.

• In a Chapter 7 bankruptcy, which wipes out your debt, some of your assets could be sold to repay your creditors.

• A Chapter 13 bankruptcy lets you keep your assets, but you’ll have to repay your debts over time.

Asset Definition and Meaning

An asset is anything you own (or own an interest in) that has value. If you’re considering bankruptcy, it’s important to understand how your assets will be handled. Depending on the type of bankruptcy you file, some of your assets may be sold to repay creditors. The value of your may be a key factor when you decide what type of bankruptcy to file.

Types of Assets in Bankruptcy

When you file for bankruptcy, you’ll need to list all your assets. Your list of assets should include anything you own that has value, even if it’s not in your physical possession.

There are three categories of assets in bankruptcy:

• Real property. This asset category includes land and the property attached to it, like a house. Mobile homes may or may not be considered real property, depending on how they're constructed (with or without a permanent foundation) and how they're taxed, as real estate or vehicles.

• Personal property. Any property you own that you can physically touch falls into this asset category. Some examples include vehicles, clothing, furniture, jewelry, and collectibles.

• Intangible property. This asset category includes property that you own but can’t touch, like your retirement account, bank account, some life insurance policies, and any stocks or bonds you own.

Essentially, you’ll need to list anything you own that has value in your bankruptcy petition.

How Are Assets Handled in Bankruptcy?

Individuals who file for bankruptcy usually have two options: Chapter 7 and Chapter 13. A key difference between the two is what happens to your assets.

• Chapter 7 bankruptcy. Sometimes referred to as liquidation bankruptcy, a Chapter 7 bankruptcy wipes out unsecured debts so that you don’t have to repay them. The bankruptcy trustee (the court-appointed person who administers the case) may sell some (but not all) of your assets to pay back your creditors. However, as we’ll explain in more detail shortly, many assets are known as exempt assets and are off-limits to creditors. In fact, some Chapter 7 cases are called no-asset bankruptcies because the person who files doesn’t own assets that the trustee can sell. Creditors get nothing in a no-asset case.

• Chapter 13 bankruptcy. A Chapter 13 bankruptcy doesn’t erase all of your debt. Instead, the court reorganizes your debt. You pay into a plan for three to five years. Once you've made all required plan payments, any remaining balances are forgiven. You don't have to surrender assets under Chapter 13. When you file bankruptcy, an automatic stay immediately goes into effect. While the case is pending, you’re protected from creditors while you reorganize your debts and your finances. Creditors are prohibited from taking legal action against you, such as filing a lawsuit or seizing your assets.

Exempt vs. Non-Exempt Assets in Bankruptcy

Exempt assets are protected and can’t be sold in a bankruptcy case. Non-exempt assets can be sold to repay your creditors.

The rules for exempt vs. non-exempt assets in bankruptcy can vary by state. Some assets are often exempt:

• Your primary home 

• A personal vehicle

• Most basic personal property, like your clothing and furniture, as long as they aren’t overly expensive

• Most retirement accounts

• Wages you’ve earned but haven’t yet received at the time you file

• Many types of benefits, including Social Security, veterans benefits, unemployment compensation, disability, and welfare payments

Valuable pieces of personal property, like jewelry, designer clothing or art, will often be considered non-exempt assets, as will secondary or vacation homes.

The rules for bankruptcy are complicated, so it’s essential to speak to a bankruptcy attorney about what assets are exempt if you’re thinking about filing.