If you file for Chapter 7 bankruptcy and all of your property is considered exempt, you will have a no-asset case. In this article, we define “no-asset cases” and explain how they work. 

Key Takeaways

• A no-asset case is a bankruptcy case in which the debtor has no non-exempt assets to sell to pay their creditors
• Most Chapter 7 bankruptcy cases are no-asset cases
• In a no-asset case, creditors do not get paid and are not required to submit a proof of claim
• If more property is later found that is not exempt, creditors will be notified and given the opportunity to claim a portion of the funds
• If a no-asset case debtor is found to have concealed property, they may be penalized

What Is a No-Asset Case?

A no-asset case is a bankruptcy case in which there are no non-exempt assets for a trustee to turn over to their bankruptcy estate in order to pay back creditors. In fact, most Chapter 7 bankruptcy cases are no-asset cases. This is because people who qualify for Chapter 7 bankruptcy often have very few assets, having to pass a means test demonstrating that they do not have the ability to pay back their debts. If this is the case, the bankrupt debtor does not actually have to hand over any funds or assets to the bankruptcy estate to be sold off. 

The reason why a person may not have to hand over any of their property is that it is possible for everything that they own to be considered exempt by federal or state law. Exempt property is property that is seen as necessary for maintaining a job and household, also called necessities of modern life. This usually includes things like:

• Clothes
• Jewelry up to a certain value
• Home furnishing
• Household goods
• Appliances
• Small amounts of equity in a house or car
• Tools of the debtor’s trade or profession
• Tax-exempt retirement plans

In a no-asset case, creditors do not get paid because the bankruptcy proceeding doesn’t generate any proceeds and Chapter 7 discharges most debts, preventing collection efforts in the future. Courts will send notices to the debtor’s creditors letting them know that they will not be receiving anything and do not need to file a proof of claim documenting how much they’re owed. 

If a bankrupt debtor is found to have concealed property as a way to have a no-asset case, they may face penalties and their right to continue with a Chapter 7 bankruptcy may be challenged. That is why it’s important for anybody filing bankruptcy to disclose all of their assets. If assets are found during the process of investigating the bankruptcy case, the creditors will be alerted so they can claim a portion of the funds. 

To help you ensure that you have correctly declared all of your property and understand what is and isn’t exempt, it’s highly recommended to work with an experienced bankruptcy attorney who can help you navigate the entire bankruptcy process.