Chapter 7 bankruptcy is designed to “liquidate” your nonexempt assets and use the proceeds to pay back your creditors as much as possible. Many assets are not liquidated, however. Federal and state laws exempt a good portion of a debtor’s assets to ensure he or she has sufficient means to support himself or herself after the bankruptcy case ends.
But in many Chapter 7 cases, the debtor has no assets or what the debtor does have is either covered by Nevada state bankruptcy exemptions or already subject to a secured creditor’s lien (e.g., a home mortgage or car loan). So, what happens when there are no assets to pay back the creditors?
Handling a “No-Asset” Bankruptcy
In a Chapter 7 case, the bankruptcy court appoints a trustee to take charge of the debtor’s estate. The trustee is the person who is responsible for collecting and liquidating the debtor’s nonexempt assets. In a typical Chapter 7 case, the trustee must file a report with the court listing the bankruptcy estate’s assets. Creditors then must file a proof of claim with the court, allowing the trustee to make distributions in an orderly fashion.
But if the debtor has no nonexempt assets, the trustee is required to file a “no-asset” report with the court. The creditors do not have to file their claims since there is nothing for them to recover. Once the bankruptcy judge confirms the no-asset report, the debtor is typically discharged from any further obligation to pay most of his or her unsecured creditors. (Some debts are not legally eligible for bankruptcy discharge, such as child support obligations and certain types of student loans.)
Of course, it is possible that the trustee will later find assets that were either accidentally omitted from the original bankruptcy filings or intentionally hidden by the debtor. In such cases, the bankruptcy court will allow creditors additional time to file claims. Of course, it should go without saying that you should never attempt to conceal assets from a bankruptcy judge or trustee. A debtor may face severe consequences, including the revocation of a previously granted discharge and possible criminal prosecution.
Is Bankruptcy Worth the Effort?
You might be wondering if there is any reason to even file for bankruptcy if all your assets are already exempt from creditor collection. Bankruptcy does involve a certain amount of time and money, and you might decide it is not worth the hassle. But here are a few things to consider when deciding if a “no-asset” bankruptcy is right for you.
First, if a creditor is threatening you with a lawsuit – or has already obtained a judgment against you – filing for bankruptcy imposes an automatic stay that prevents any further legal action until a judge decides otherwise. The automatic stay means all collection efforts must cease immediately. This includes secured creditors, so even your mortgage lender must suspend any foreclosure proceedings. And while the stay will not get you out of your mortgage obligations, it can buy you time to negotiate with the lender and possibly catch up on any missed payments.
On the other hand, you may be in a situation where your creditors have no legal recourse against you even if you do not seek bankruptcy protection. For any debt, there is a statute of limitations – a state-imposed legal deadline for filing a lawsuit against a debtor. For “open accounts” like credit cards, the statute of limitations in Nevada is four years. So, if you have a credit card that has not been paid in five years and the bank has yet to take legal action, you are “in the clear,” at least in terms of not facing a civil judgment.
Of course, any unpaid debts may be reflected on your credit report. Filing for Chapter 7 bankruptcy allows you to “wipe the slate” and start over without any prior debts hanging over your head. This alone might justify filing a no-asset bankruptcy.
Need Advice from a Nevada Bankruptcy Lawyer?
The decision to file for bankruptcy is never easy. Many people do not want to admit they have “failed” and require legal protection. But bankruptcy is not a sign of moral weakness. Often, a sudden, unexpected debt – a medical bill following an accident, for example – simply overwhelms individuals of modest means. Bankruptcy is meant to protect them from a lifetime of crippling debt obligations.
An experienced Las Vegas bankruptcy attorney can sit down with you and review your financial situation. The Law Office of Erik Severino offers personal attention to individuals facing the prospect of Chapter 7 bankruptcy. Call us today at 702-997-4149 to schedule a free consultation.