Bankruptcy: What Is Property?

Learn about the various types of property and assets that should be disclosed in your bankruptcy petition.

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What's the quickest easiest way to lose property in a bankruptcy, lose your discharge, and even face criminal prosecution? That's easy, omitting property from your bankruptcy petition.

Remember that at its heart, bankruptcy is bargain between you and the bankruptcy court: in exchange for your honesty and your willingness to follow court orders, the court will grant you a discharge. It's very simple; debtors that don't list all of their property on the bankruptcy petition haven't upheld their end of the bargain.

Property in the "Bankruptcy Estate"

Here's how it works. All of your property becomes property of the estate as soon as you file bankruptcy. In chapter 7, if all of your property is exempt or doesn't have any value for the estate, then the trustee will file a no-asset report and your case will be closed shortly after the discharge date. Once the case is closed, there is no more bankruptcy estate and the property all goes back to you. In chapter 13, if all of your property is exempt or doesn't have any value for the bankruptcy estate, then your case has a zero dollar liquidation value.

The problem is that "property of the estate" has a broad definition, so it's easy for pro se parties and inexperienced attorneys to make a mistake.

The US Bankruptcy Code defines property of the estate as "all legal or equitable interests of the debtor in property as of the commencement of the case." When we say that we own property, what we mean is that we have an undivided present possessory interest in that property. What that means in plain English is that you currently have possession of property and it cannot be taken from you. That property definitely goes on your bankruptcy petition. But that's not the only kind of property. Interests in property include the right to receive property either now or in the future, even if the value of that property or the extent of your interest in that property is undecided on the date of the bankruptcy.

Right to Property

A right to property is an interest in property that must be disclosed on the bankruptcy petition. A right to property means that you do not have the property at the moment, but the law allows you to require someone to give you that property either on demand, after a certain amount of time has passed, or after certain conditions are fulfilled. For example, if you loaned a friend $10,000 and he agreed to pay it back in 5 years that is a right to property that must be included in the bankruptcy. Neither you nor the bankruptcy trustee could require your friend to pay back the money before the five years is up, but the right to have that money in the future is an interest in property that has to be disclosed.

In fact, you may have an interest in property and not know how much it is worth or if you are even entitled to ever get the property. This is a contingent unliquidated interest (unliquidated simply means that the dollar value has not been set). Contingent means that you might have the property right sometime in the future, but then again you might not. One common form of unliquidated property interest in a bankruptcy is a personal injury lawsuit. If someone runs over your foot the week before you file bankruptcy, you have the right to sue them for personal injury. However, you won't know how much that personal injury lawsuit is worth, until the end of the lawsuit. Maybe it's actually your fault that your foot got run over, and you have no right to damages. Even if you are entitled to damages, maybe they are worth $10,000 and maybe they're worth $1.

When you are preparing your bankruptcy petition, you are asked to list all of your property. As you can see property in bankruptcy means everything from the clothes on your back to legal or equitable interests in property that may require you to take wait for a certain period of time or take certain steps. Property includes something that has a defined value like a bank account, as well as something where the value is unknown on the date of the bankruptcy filing.

Determining All Property and Assets to List

Since property is so broadly defined in bankruptcy, I tell my clients to think about everything they own and every way they could get money or property for themselves either now or in the future.

  • Does your employer allow you to cash out unused vacation days?
  • Does the IRS owe you a tax refund for an unfiled or recently filed return?
  • If someone sells a piece of property are you entitled to a share of the profits?
  • Does someone owe you money?
  • Are you the silent partner in a business?
  • Do you co-own property with someone besides your spouse?
  • Could you file a lawsuit against someone?
  • Are you entitled to any unclaimed government benefits?
  • Are you an authorized signer on someone else's account?
  • Do you expect to get something from someone's estate when they pass away?

These are all examples of rights and interests that must be disclosed. But this is not a complete list, because every case is different. The point is that before you file bankruptcy, you must be aware of the varieties of items that are considered property of the estate that must be disclosed on a bankruptcy petition.

If you are not sure whether something needs to be listed as property on a bankruptcy petition, then ask yourself: could I receive money or property, whether now or in the future, even if I haven't started the steps to collect or receive it, and even if I'm not sure how or whether I'll actually receive it or how much it is really worth?

If the answer is yes, then you have a property interest that must be disclosed. Remember, trustees see thousands of bankruptcy cases. It is far better for the trustee to investigate whether property has actual value for the bankruptcy estate and decide that he will leave it alone, than the trustee to discover a random property interest that you failed to disclose. Or put in the simplest possible terms: when in doubt, disclose.

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