What is the Bankruptcy Estate?

Your bankruptcy estate contains your personal and real property that your bankruptcy trustee has the right to “administer” for the benefit of your creditors. A piece property that is not in your bankruptcy estate, then the bankruptcy trustee is not allowed any rights to it.

Generally, your bankruptcy estate is all the property that you own at the time your case is filed. There are differences, however, between estates in Chapter 7 and Chapter 13. For example, in Chapter 7 bankruptcy, any property you acquire after you file for bankruptcy is not included in your estate (there are some exceptions). In Chapter 13 bankruptcy, all property and even future income you acquire while your case is active (which lasts from three to five years) is part of the bankruptcy estate.

The bankruptcy law also has exceptions so that some property you own when you file is not part of your bankruptcy estate (for example, certain retirement accounts and clothing). Generally speaking, the debtor’s creditors are paid from nonexempt property of the estate.

The main purpose of the chapter 7 trustee in case with assets is to liquidate the debtor’s nonexempt assets to repay the debtor’s unsecured creditors. The trustee will sell the debtor’s property if it is free of liens, or if it is worth more than any lien attached to the property as well as the debtor’s exemption.

Section 726 of the Bankruptcy Code controls the distribution of property of the estate. There are six classes of creditor’s claims, and each class must be paid in full before the next lower class is paid anything. Accordingly, the debtor receives the remaining assets only if all other classes of claims have been paid in full. Thus, a debtor is interested in the trustee’s disposition of the estate assets in that he wants debts which are not dischargeable in the bankruptcy case to be paid first. The debtor’s other concern is to retain exempt property and to receive a discharge that covers as many debts as possible.