Under Chapter 7 bankruptcy, your assets are valued by a court-appointed trustee and sold to pay your creditors. You are able to shield property from sale by invoking legal exemptions to protect personal property, a limited amount of real estate and motor vehicles up to a certain value. If the value of your assets exceeds your eligible exemptions, you must address these overages through your bankruptcy proceedings if you want to keep the property.
If you know at the time you file your petition for Chapter 7 bankruptcy that you are unable to pay for any asset overages, you may choose to surrender the asset in its entirety for sale by the trustee. With this choice you would not be able to retain the asset. Alternatively, if you want to keep a specific asset with an overage, such as a car with a value in excess of an exemption, you could surrender exempt property for sale by the trustee to offset the vehicle's overage.
Buy the Property Back
If you have no other exempt assets to trade with the trustee in a surrender to cover any overages, you have the option in a Chapter 7 bankruptcy to set up a buy back plan with the court. Under property buy back, a 12-month payment plan is established in which you pay the trustee, who in turn pays your creditors, for the overage amount.
If, after establishing a buy back plan, you are unable to meet the terms of your payment schedule, you may be able to amend the schedule by extending the repayment period. This can be accomplished by filing a motion to amend with the bankruptcy court prior to the court issuing a discharge of your debts and closing your case. The bankruptcy judge will issue a decision on your request based on the circumstances of your case.
Failing to repay your overages under the terms agreed upon in the bankruptcy plan could have severe legal consequences. If you are simply unable to meet the payment obligations despite your good faith efforts to do so, the court could simply seize the property and sell it at auction to pay your creditors. If the court suspects you were fraudulent in your bankruptcy filings, the court could reopen the closed bankruptcy case, reverse the discharge of indebtedness, impose a civil fine and possibly refer you for criminal prosecution.