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Non Exempt Property in Bankruptcy

What is non exempt property?

Non exempt property is property that is seized and taken by the bankruptcy court to repay creditors when an individual files for bankruptcy. There are many aspects about non exempt properties that individuals may not know. Can they be used to buy exempt property, can they be bought by debtors from trustees and so on. Given below are popular questions about non exempt properties that are asked by individuals.

Can an Individual sell Non Exempt Property just before Filing for Bankruptcy and Use the money on himself/herself?

If an individual sells non exempt property just before filing bankruptcy, he/she may not be able to use the money on himself/herself. He/she, however, may buy exempt property from that money. If the money from the non exempt property is used for personal purposes, it may be considered fraud and the trustee may ask the individual to pay all the money back to him/her.

Can Non Exempt Property be sold to buy Exempt Items?

In most situations, it would be considered a bankruptcy fraud to sell non exempt property 6 months before filing for bankruptcy. However, individuals may sell non exempt property to buy exempt property if the value of the sold item is less than $600 and the money would be used to buy essential exempt property like food.

Can a Lien be Avoided on a Non Exempt Property in Bankruptcy?

A lien may not be removed from a non exempt property. A lien on a non exempt property remains intact throughout the bankruptcy. If it is on an exempt property, an individual may get a lien removed by filing a motion in bankruptcy court to avoid a lien. If a lien is on a partially exempt and partially non exempt property, only the lien that is on the partially non exempt property may not be removed and will last through the bankruptcy. The lien on the exempt part of the property may be removed.

Can a Debtor buy Non Exempt Property from the Bankruptcy Trustee?

In most situations, a debtor may be able to buy back the non exempt assets from the bankruptcy trustee. However, the debtor may buy the non exempt asset from the trustee only by using exempt funds. In some cases, the trustee may allow the debtor to pay for the asset over a period of six months.

What happens in a Chapter 13 Bankruptcy if an Individual does not have any Non Exempt Property?

Any chapter of bankruptcy normally has a payment plan. If an individual does not have non exempt property that can be used to pay off his/her debtors after he/she files for bankruptcy, then his/her disposable income may be used to repay the creditors. For instance, in some cases, if the individual earns a monthly income, whatever money is left from the income will be used to repay the creditors over a period of time if the individual does not have any non exempt property.

Can an Individual convert from a Chapter 7 to a Chapter 13 Bankruptcy to keep all of his/her Non Exempt Property?

An individual may convert from a chapter 7 to a chapter 13 bankruptcy if he/she wants to keep all the non exempt property. However, the individual’s debts may not be discharged like debts in a chapter 7 bankruptcy. He/she may have to repay all the debt.

Understanding what non exempt property means and how it can be used to repay creditors in bankruptcy will help individuals plan their bankruptcy well before filing for it. It will help individuals who file for bankruptcy plan how to use the non exempt property so that they do not lose all of their property and are able to save some of it.
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