Bankruptcy: What is a “non-asset” case?
With a Chapter 7 Bankruptcy, cases typically fall into one of two categories: Asset v. Non-Asset
An asset case is one in which the trustee finds that there are (1) unexempt assets, or (2) preferential or fraudulent transfers that can be undone. In there situations, there will be funds available to be distributed to the creditors.
With unexempt assets, typically the Debtor (person that filed for bankruptcy) will be able to choose between turning over the asset to the trustee, or paying the trustee an amount equivalent to it’s listed value. For more on what makes something unexempt, please view our bankruptcy exemption page.
With preferential or fraudulent transfers, typically the trustee will go after the person that received the property or funds, however, occasionally the Debtor will volunteer to pay the amount in order to protect the receiving party. This is common with family members or friends.
At the end of the day, what does this really mean for you? First off, if it is an “Asset” case then there is a chance that the Debtor or a family member will have to turn over property or money to the trustee. But secondly, if a case is ever an Asset case, then only those creditors that received a notice of the bankruptcy filing will receive a discharge.
So for example, let’s say that you owe money to ABC Phone company, but at the time of filing you forgot you owed them money so you never listed them as a creditor. If you are in a “Non-Asset” case, then at any point (whether your bankruptcy is open or closed) you can notify the phone company of your bankruptcy, and they have to forgive your debt. To the contrary, if you are in an “Asset” case, then you will need to amend your schedules and notify the phone company of your bankruptcy while your case is still open. If you fail to inform them until after your case is closed, then that debt survives your bankruptcy, and you will owe them that debt. See In re Madaj, 149 F.3d 467 (6th Cir. 1998).
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