What happens to the money in bankruptcy cases

money in bankruptcy cases

Normally there is no money in bankruptcy cases to pay anyone. These cases are called “no asset cases.” That is because the debtor who has filed bankruptcy has no assets of sufficient value to justify liquidation of the assets. However, the law is very lenient about what a person in bankruptcy is allowed to keep. Most assets that ordinary people have will usually be exempt. The protected assets are termed “exempt property.”

Exempt property is “exempt” from being taken, (liquidated) by the bankruptcy trustee. That is why generally we see no money no bankruptcy cases to pay anything to creditors.

Here is what happens to money in bankruptcy cases after non exempt assets are sold.

money in bankruptcy casesI recently handled a case that had something for the trustee to sell. My client had an accumulation of silver dimes. The dimes were minted prior to 1965. Prior to 1965, most United States coins were minted in 90% silver. Since then the value of silver has risen by about 225%! In 1965 the mint stopped making silver coins for general circulation. That’s because the silver content of a 10 cent dime was worth a lot more than ten cents. Today, the silver content of those old dimes is now about $2.25.

In this case the dimes could not be exempted. We voluntarily arranged to turn them over to the trustee.

The trustee obtained a court order allowing the dimes to be sold on a certain date for the spot market price of their silver content. The sale produced $12,642 which the trustee was required to deposit for the benefit of the bankruptcy estate into a fiduciary bank account.

Creditors were given a deadline to file a proof of claim.

Creditors were notified of the filing deadline in a notice served on them by the court clerk. After passage of the deadline, a total of $179,681 in creditor claims had been filed.

Duties of the Chapter 7 bankruptcy trustee.

A bankruptcy trustee must account to the court for all of the money collected. After the asset liquidation process is finished, the trustee will ask the court to approve a report. The report summarizes all of the activity in the case. That includes listing all the creditors who have allowed claims, and the proposed distribution that will be made. The Report also recaps fees that are due the trustee and other professionals who have assisted the trustee, (subject to prior court approval).

The money in bankruptcy cases – this is where it went in for case.

The trustee and officers of the bankruptcy estate were legally entitled to a total of $5,271 in compensation. The rates of compensation are set by law. But, that would have left only $7112 to be shared by the creditors. The creditor claims totaled holding $179,642. There was enough money left to pay only 3.95% across the board for every creditor.

The bankruptcy trustee then voluntarily waived part of the allowable fees. The reduction came to $2247. This reduction allowed creditors to receive a slightly better distribution. The final of distribution was 5.205 across the board to creditors.

Court policy when there is money in bankruptcy cases

money in bankruptcy casesThe courts do not want to see administrative fees eat up all the money. There is a policy that creditors should receive at least 5% absent extraordinary circumstances. In this case, the ratio of assets to debts was very low. There just wasn’t going to be much money for creditors, even if the trustee was paid nothing.


The final result. Happiness!

Best Time to File BankruptcyPeople should not be afraid of losing assets during a bankruptcy case. That is because most assets are either exempt, or have no liquidation value. a bankruptcy expert should always be consulted to advise you. Most people who file bankruptcy don’t lose anything that belongs to them. We rarely see an “asset case” in bankruptcy court.

My client knew going into the process that the silver dimes would have to be turned over. Nobody likes to think about giving something up. My client had give up the silver dimes, which were worth $12,642. But in exchange for giving up the dimes, my client discharged $179,681 of debts.

From my client’s standpoint, this worked out to about 7 pennies on the dollar. Nobody ever gets a debt settlement that good! But, in this case, my client could not have been happier. The client kept a home, cars and other exempt assets. The only thing given up was the dimes, and the debts!

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Leon Bayer and Jeffrey Wishman are Los Angeles Bankruptcy attorneys. They have been practicing bankruptcy lawyers in Los Angeles for 37 years and are Certified Bankruptcy Specialists by the State Bar of California. These are lawyers who bring experience, skill and creativity to the highly complex area of bankruptcy law. At this Los Angeles law firm, the your initial consultation with an expert is free. Mr. Bayer is a coauthor of Nolo's The New Bankruptcy: Will It Work for You?, authors the “Ask Leon” series on Nolo’s Bankruptcy, Debt & Foreclosure blog, and writes on bankruptcy topics for Nolo’s website. In addition, Mr. Bayer devotes a significant number of hours to volunteer legal services. The State Bar of California has commended Mr. Bayer for this work every year since 2004.