Prior to becoming a bankruptcy lawyer, the word “estate” invoked images of beautiful mansions situated on sprawling acres of land.
In fact, Merriam-Webster defines estate as:
“…landed property, usually with a large house on it.”
These estates are usually set in the country, far from the hustle, bustle and congestion of the big city.
Jumping out of my imagination, there is another type of estate situated at the bankruptcy court. If considering bankruptcy, it is important to understand the concept of the bankruptcy estate.
The Bankruptcy Estate
As defined in 11 U.S.C. Sec. 541, the commencement of a bankruptcy case creates an estate. As a debtor, all of your property becomes part of the bankruptcy estate.
Section 541 is extremely broad and includes “…all legal or equitable interests of the debtor in property as of the commencement of the case.”
The property in the estate is subject to the supervision of the bankruptcy court and the bankruptcy trustee.
In addition to property in your possession at the time of filing, certain property acquired within 180 days of the filing could become property of the estate. Examples of after-acquired property included life insurance benefits, divorce settlements and inheritances.
The trustee, as “supervisor” of the estate is able to sell property for the benefit of the creditors
Exempt Property
While almost all of your property becomes part of the bankruptcy estate, exemptions are available to protect certain property.
Most bankruptcy cases go through without any property being sold for the benefit of creditors. It is a common misconception that if you file bankruptcy, you will lose everything. This is simply not true.
It is important to understand that exempt property is still part of the bankruptcy estate, but it is shielded and protected from creditors. If there are no objections to claimed exemptions, the property is subsequently removed from the bankruptcy estate.
Abandoned Property
Sometimes, non-exempt property of the estate gets “abandoned” by the trustee.
In cases where property has minimal value or would be too difficult to administer, the trustee could simply abandon that asset. Upon the closing of the bankruptcy case, all abandoned property would revert back to you, the debtor.
The bankruptcy estate can be seen as a living, breathing thing. It is an entity in and of itself and can be a tricky concept to understand with its assets, administration, exempt property, etc.
It is the understanding of the estate that most frequently trips up pro se filers.
To close on a positive note, I leave you with a quote from Emily Dickinson:
“My friends are my estate.”
…but don’t worry, your friends will not become part of your bankruptcy estate.