When a debtor files for bankruptcy, their assets become something called property of the estate. In this article, we define the term “property of the estate” and explain what is and is not included in it.
When a debtor files for bankruptcy, their property is seized and put into a bankruptcy estate. Anything in the bankruptcy estate is considered to be property of the estate, and it will be sold off and the proceeds used to equally pay back all of the debtor’s creditors.
Property of the estate is governed by section 541 of the Bankruptcy Code. According to this section, property of the estate includes all legal or equitable interests of the debtor in property as of the commencement of the case.
In practice, property of the estate will include:
That being said, not everything that a debtor owns will be considered property of the estate. There are certain things that are exempt from being included in the estate, with both federal and state exemption lists existing. Among property not usually included in property of the estate is:
Once property is put into a bankruptcy estate, the debtor can no longer use it as they see fit. The bankruptcy estate is managed by the bankruptcy trustee who has control over the property of the estate. The trustee is a neutral third party who has a duty to the debtor’s creditors to properly manage property of the estate for the creditors’ benefit.