What Happens to Assets Acquired After a Chapter 7 Filing?

By Kevin Owen

Under a Chapter 7 bankruptcy, a court-appointed trustee sells any property that is not exempt from liquidation and gives the proceeds of the sale to your creditors. When you file your petition for Chapter 7 bankruptcy relief, you are required to identify all relevant assets so the trustee can proceed with this liquidation process. Generally, if you acquire property after you file your petition, it will not be subject to liquidation as part of your bankruptcy estate.

Liquidation

Once you file your bankruptcy petition, all of your property becomes part of your "bankruptcy estate." You are permitted to keep assets that are exempt from liquidation by state or federal law. Since the bankruptcy estate is created at the time you file your petition, property that you acquire after you seek bankruptcy relief is generally not part of the estate and therefore not subject to liquidation.

Non-Dischargeable

When you file your petition for bankruptcy, you are immediately entitled to an automatic stay of any collection activities by your creditors, which prevents them from taking any steps to get you to pay your debt. The automatic stay prohibits creditors from calling you about your debt, sending you threatening letters, making notations on your credit report and filing lawsuits to collect the debt. However, the automatic stay does not protect any property that you buy on credit after you file for bankruptcy. Therefore, if you default on a new loan, the creditor can send the debt to a collection agency, sue you or repossess the property since it is not protected by being part of your bankruptcy case.

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Exceptions

There are exceptions to the general rule that you may keep property acquired after filing your Chapter 7 bankruptcy petition. Specifically, if you are eligible to receive compensation or property before you file your petition but do not receive it until after your bankruptcy case begins, the property may be considered part of your bankruptcy estate and subject to liquidation. For example, an inheritance, insurance proceeds or damage award for certain types of lawsuits may be part of your bankruptcy estate even though you do not receive the money or property until after your case begins. You are required to notify the trustee once you learn that you are awarded any of these types of assets or become eligible to receive them. The court will then determine whether they must be included in your bankruptcy estate.

Six Month Rule

To determine whether property obtained through lawsuits, inheritance or insurance is part of the bankruptcy estate, the court looks to when you are eligible to receive the funds. If you can claim the money within 180 days after you filed your bankruptcy petition, it is subject to Chapter 7 liquidation. This six month rule applies even if you do not actually claim the money during the 180-day period.

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References

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