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  1. #1
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    Default Disposition of an Estate's Property by a Trustee in a Chapter 7 Asset Case

    My question involves bankruptcy in the state of: CT

    First, just rounding off numbers to make things easy.

    Say we have a Chap7 asset case, where the total list of claims filed by the creditors is $30k. Say the trustee did not accept a reasonable offer to buy back the assets, and the debtor was forced into a bidding war with another individual. The debtor has the winning bid, at $50k, and pays that in full to the trustee immediately. The debtor also has exemptions of $10k. That $10k is returned to the debtor, and the trustee now has $40k in his possession.

    Here is the question: Is the exemption applied (not sure if that is the correct legal term) to the winning bid, or the claims summary? ie, does the $10k get applied to the $50k, leaving the claims summary at $30k, or does it get applied to the claims summary, leaving the claims at $20k?

    I am trying to work this through my head, and at first, I was saying, what difference does it make where the winning bid is applied to? But it does make a difference, in how much money comes back to the debtor, and what dollar amount the administrative fees are based off of.

    I was looking for the statute that deals with this, but could not find anything. Then again, I am not confident I know what I am looking at. Does anyone know the correct way this is handled as per the law, and does anyone know what statute addresses this?

    Thank you!

  2. #2
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    Default Re: Inquiring About Disposition of an Estate's Property by the Trustee in an Asset Ca

    The premise that somebody with $50,000 would file bankruptcy for $30,000 in debt eludes me.

    Is this YOUR bankruptcy?

    As for looking for a statute, the statute is called the US Bankruptcy Code and it's at:

    https://www.law.cornell.edu/uscode/text/11

  3. #3
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    Default Re: Inquiring About Disposition of an Estate's Property by the Trustee in an Asset Ca

    Quote Quoting adjusterjack
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    The premise that somebody with $50,000 would file bankruptcy for $30,000 in debt eludes me.

    Is this YOUR bankruptcy?

    As for looking for a statute, the statute is called the US Bankruptcy Code and it's at:

    https://www.law.cornell.edu/uscode/text/11
    to me, more curious is that the trustee would approve a BK where applicant obviously has $50k in liquid assets and only $30k in claimed debts. Kind of the antithesis of bankruptcy in my mind.

    From my (sometimes mistaken) understanding of bankruptcy.

    . An exemption is not applied to anything. It simply allows the exempted value to be excluded from claims against it. In other words; if I have $10k that is exempt from claims, then the value is disregarded when calculating assets available to be utilized to pay debts. It doesn't mean the creditors claims are somehow (magically perhaps) reduced by $10k.

    If the asset sold (by the trustee) included $10k of value in exempted assets then what happens is the $10k is returned to the debtor and remainder applied to debts. It is not creating exempt asserts but merely converting the exempt value into cash. That cash remains exempt since it was derived from liquidating a partially exempt asset.

    If you choose to use exempt funds to purchase property from the trustee you have just converted exemlt assets into assets available to pay your creditors. In effect you have transferred your exemption from assets used to purchase the asset from the trustee to those assets purchased from the trustee. If you valued the purchase assets at $50k and used exempt assets to purchase the non-exempt assets from the trustee, the entire amount becomes money available to pay your creditors. In return you now own the assets you valued at $50k. Any money remaining after your debts, costs, and fees are paid is returned to you.

    So what is the basis of your statement that you have $10k of exemptions from
    somewhere?

  4. #4
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    Default Re: Inquiring About Disposition of an Estate's Property by the Trustee in an Asset Ca

    Thank you for the replies.

    Quote Quoting adjusterjack
    View Post
    The premise that somebody with $50,000 would file bankruptcy for $30,000 in debt eludes me.
    Who said it was $30,000 in debt? I said the claims filed by the creditors was $30k.

    jk - appreciate the time, but I am not sure I understand your post in it's entirety.

    money remaining after your debts, costs, and fees are paid is returned to you.

    That part I get, But it is how we arrive at the "money remaining" that I am calling into question. The money remaining is going to be different, depending on how the exemption is applied.

    Thanks.

  5. #5
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    Default Re: Inquiring About Disposition of an Estate's Property by the Trustee in an Asset Ca

    Quote Quoting CharWorks
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    Thank you for the replies.



    Who said it was $30,000 in debt? I said the claims filed by the creditors was $30k.

    jk - appreciate the time, but I am not sure I understand your post in it's entirety.

    money remaining after your debts, costs, and fees are paid is returned to you.

    That part I get, But it is how we arrive at the "money remaining" that I am calling into question. The money remaining is going to be different, depending on how the exemption is applied.

    Thanks.
    No it won't be different because an exemption isn't applied. It is either an exempt asset or it isn't.

    If an asset that is partiallly exempt ( an example would be where you have $1000 in exemption of vehicles but have a vehicle with $5000 in value) is sold, the $4000 of non exempt value is used to pay creditors claims. The remaining $1000 is returned to the debtor and remains an exempt asset as it was derived from the exempt asset. It does not get converted from
    exempt to non exempt through the sale.

    The $10k you are saying is an exemption. Is that because $10k of
    tbe value of the assets sold exempt?

    is it becuase $10k of the cash you used to purchase the assets was exempt?

    just where is the claim you have $10k in exempt assets coming from?

  6. #6
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    Default Re: Inquiring About Disposition of an Estate's Property by the Trustee in an Asset Ca

    Thanks.

    Ok, maybe I am not quite understanding what is meant by "exemption". Doesn't my exemption allow me to keep a certain amount of property?

  7. #7
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    Default Re: Inquiring About Disposition of an Estate's Property by the Trustee in an Asset Ca

    Exemptions are specific items or listed items up to a specific value or money held in certain accounts or from certain sources that cannot be sold by the trustee to create liquid assets to pay creditors claims.

    Exemptions are spelled out in state statute or, in your state you could use then federal exemptions which are defined in federal code.

    CT exemptions.

    The Connecticut exemptions include:
    1. necessary apparel, bedding, foodstuffs, household furniture, and appliances;2. tools, books, instruments, farm animals and livestock feed that the individual needs for his occupation, profession, or farming operation;3. a burial plot for the individual and his immediate family;4. welfare payments and wages the welfare recipient earns under an incentive earnings or similar program;5. health and disability insurance payments;6. health aids the individual needs to work or sustain health;7. workers' compensation, social security, veterans' and unemployment benefits;8. court-approved child support payments;9. arms and military equipment, uniforms and musical instruments owned by someone in the United States armed forces or militia;10. one motor vehicle worth up to $1,500 (fair market value minus all liens and security interests on it);11. wedding and engagement rings;12. one residential utility deposit and one residential security deposit13. an individual's assets or interests in a retirement, Keogh, individual retirement account, or similar plan or arrangement;14. alimony and support, other than child support, but only to the extent that wages are exempt from execution;15. an award under a crime reparations act;16. benefits allowed by any association of persons in this state for the support of its members who are incapacitated by sickness or infirmity;17. money due to the individual from an insurance company on any insurance policy issued on exempt property, to the same extent that the property was exempt;18. an interest in any property that does not exceed $1,000 in value;19. an interest of up to $4,000 in any accrued dividend or interest under, or loan value of, any unmatured life insurance contract the individual owns under which he, or someone whose dependent he is, is insured;20. the individual's homestead (owner-occupied real property or mobile home used as a primary residence) up to a value of $75,000 in equity (fair market value minus any statutory or consensual lien on it); and21. irrevocable transfers of money to an account held by a bona fide licensed nonprofit debt adjuster for the benefit of the individual's creditors (CGS 52-352b).
    outside of that (for the most part anyway), an asset you hold can be used to pay creditors claims whether it be cash or liquidated to convert it to cash and then be used to pay creditors claims.

    For the items to be sold they would either be non-exempt or partially exempt. If they were non-exempt, the entire $50k is used to pay creditors. If partially exempt, the non-exempt portion would be used to pay creditors but the exempt portion would be returned to you. It doesn't get applied to anything. It's just yours.

    In your example above my question was regarding the asset purchased for $50k. Was it totally non-exempt or was $10k of it exempt with the remainder non-exempt? If neither, how are you suggesting you have a $10k exemption that can somehow be applied to the liquidated asset's value?

    and where did you obtain $50k in liquid exempt assets?

  8. #8
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    Default Re: Inquiring About Disposition of an Estate's Property by the Trustee in an Asset Ca

    Quote Quoting CharWorks
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    Thanks.

    Ok, maybe I am not quite understanding what is meant by "exemption". Doesn't my exemption allow me to keep a certain amount of property?
    You have 50k in assets. That is the cash you came up with for your assets. You get to keep 10k of assets so the trustee gives you 10k back. That leaves 40k to cover your creditors. You need only 30k for that so you get another 10k back.

    You are thinking wrongly that the 10k should reduce the creditors claims. It would only work that way if your assets were less than your liabilities.

  9. #9
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    Default Re: Disposition of an Estate's Property by a Trustee in a Chapter 7 Asset Case

    Thanks to both of you for the info.

    You are thinking wrongly that the 10k should reduce the creditors claims. It would only work that way if your assets were less than your liabilities.

    Got it. I was thinking the exemption reduced the amount I owe, and as the amount I owe is the list of claims, I was thinking that amount would be reduced. Guess not?

  10. #10
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    Default Re: Disposition of an Estate's Property by a Trustee in a Chapter 7 Asset Case

    Quote Quoting CharWorks
    View Post
    Thanks to both of you for the info.

    You are thinking wrongly that the 10k should reduce the creditors claims. It would only work that way if your assets were less than your liabilities.

    Got it. I was thinking the exemption reduced the amount I owe, and as the amount I owe is the list of claims, I was thinking that amount would be reduced. Guess not?
    Ok, lets do some math:
    50k of assets - 10k exemption = 40k available to pay debts

    30k of assets - 10k exemption = 20k available to pay debts.

    In the first example the creditors get paid in full because assets are greater than the liabilities. In the second case the creditors only get
    about 2/3rds of their claims because the assets were the same size as the liabilities.

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