Unexempt Property in a Chapter 7

Upon filing a Chapter 7, all of the debtor's property becomes part of the bankruptcy estate.  However, there are certain exemptions available that exclude property from the bankruptcy estate and protect it from unsecured creditors.  The reason for such exemptions is to allow debtors to obtain a "fresh start" while still maintaining necessary possessions, such as their house, car, clothing and personal property.  Depending on the state, exemptions are based upon either state or federal statute.  In a Chapter 7, the trustee's job is to administer the bankruptcy estate and see if there are any unexempt assets which can be distributed to creditors.  If there is property in the bankruptcy estate that is not covered by one of these exemptions, the trustee may collect this property or the value of the property.  Typically, the trustee will ask the debtor to pay into the estate the amount of unexempt equity in the property.  This payment can often be broken down into smaller installment payments until the amount of unexempt equity is paid in full.  In instances where the trustee collects the property itself, he or she must liquidate it, or turn it into cash.  The trustee can do this by selling the property either at a private sale or a public auction. 

               When the trustee discovers there are unexempt assets in a Chapter 7 case, he or she sends out a notice of assets to the creditors involved in the bankruptcy.  Creditors file what are known as a "proof of claim."  As long as the trustee does not object to the proof of claim, the proof of claim is allowed.  The trustee will object to the proof of claim if it does not contain the necessary or correct documentation and information.  The trustee will also object to the proof of claim if it is filed after the deadline to file a proof of claim, which is set forth at the commencement of the case.  The trustee will disburse the money he or she has recovered from the unexempt assets to the creditors based upon the claims filed.  If a creditor does not file a proof of claim they will not receive any disbursement from the trustee.  After the trustee has made the disbursements of assets to the creditors he or she will file a final report and accounting.  This means that the estate has been administered and the case will be concluded.