The client is told she’ll have to pay something to the trustee in bankruptcy, and her heart sinks. But it doesn’t have to be that bad.
Every Chapter 7 client wants a “no asset” case, when a debtor’s equity in his assets is less than allowed exemptions. But sometimes the client’s commissions are just too high, or the car is paid off, or the tax refund is too generous, and there’s no room left in the allowed exemptions.
When this happens, the client should know that the trustee has his own tough choice: try to sell the assets on the open market, or strike a deal with the debtor? For most trustees who fear that their estate may only be worth a few thousand dollars, the ease of selling the assets back to the debtor far outweights the burden, cost and uncertainty of trying to get top dollar for the assets on the open market.
These days, with so many clients still reeling from the real estate boom and bust of the last decade, the debt may have mushroomed to hundreds of thousands or even millions of dollars from homes or investment properties gone bad. Even clients who are eligible for Chapter 13 may choose instead to swallow hard and write a check to the trustee in order to put the mess behind them once and for all.
Clients should take some comfort understanding that the debtor is usually the best buyer for bankrupt assets, and for a Chapter 7 trustee even a bargain sale beats exposing the assets to the open market.
For more information, read Over Exemptions? Pay Cash to the Trustee and Sleep Better.