What property do debtors have to give up in Chapter 7? What about tax refunds and lawsuits?

Posted on August 16, 2013. Filed under: Chapter 13 Bankruptcy, Chapter 7 Bankruptcy, Consumer Bankruptcy Attorney | Tags: , |

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Debtors in Chapter 7 are required to give up “nonexempt” property that they own at the time of the filing; they are allowed to keep both “exempt” property that they own at the time of filing and any property that they receive a right to own after the bankruptcy filing. Exempt property is property that, according to the law, is necessary for the debtors’ support and the support of their dependents. In Kentucky, either Federal or State exemptions are available for you to use. If all of a debtor’s property is exempt, then the debtor does not have to give up any property in Chapter 7, but may still obtain a discharge.

As long a debtor has a right to payment at the time of the bankruptcy filing—from a tax refund, a lawsuit, or some other source—that right to payment is property that must be given to the Chapter 7 trustee unless it is exempt, even though the debtor has not yet received any money. Thus, a debtor may have to turn over all or a portion of a tax refund to the trustee that is received, and a debtor may not be entitled to all or a portion of the settlement of a personal injury action that is entered into after the bankruptcy is filed.

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