Chapter 7 Trustee's Discretion To Pursue or Ignore Non-exempt Assets

Chapter 7 trustees have discretion to pursue, or not pursue, a debtor’s non-exempt assets for the benefit of the bankruptcy estate. Just because a debtor files bankruptcy with assets over the personal property exemption limits does not mean he will necessarily lose the assets during the Chapter 7 bankruptcy. For example, this past week I attended a trustee examination at a 341 meeting with a debtor whose bankruptcy schedules showed that he had $2,700 of non-exempt car equity and an expected non-exempt tax refund of approximately $1,800. The Chapter 7 trustee indicated that he had no interest in pursuing the assets or asking the debtor to buy back the assets. The trustee gave the debtor a "free pass" as to his non-exempt assets.

In my experience this particular trustee is neither unusually lenient nor strict, and I saw no indication that the trustee wanted to do this debtor any favors for any reason. The trustee probably decided that the amount of non-exempt assets was too small to justify the effort to recover the assets. Motions, paperwork, and court orders are require in most cases where a Chapter 7 trustee wants to recover and sell a debtor’s assets for the benefit of a creditors. Trustees are compensated based on the amount of assets recovered for the bankruptcy estate. Sometimes trustees decided that the amount of a debtor’s non-exempt assets is not large enough to justify the effort to recover and sell the assets. Different trustees have different policies toward asset recovery in small Chapter 7 bankruptcy estates. You should not assume that you will be able to keep non-exempt assets even if the amount of non-exempt assets is relatively small. Some debtors are lucky, but I have also seen trustees pursue very small non-exempt values in assets, such as cars, in order to force payments by the debtors.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida