Can I file Chapter 7 if I have no property or assets to turn over to the trustee?

Yes, under bankruptcy law, you can still liquidate in a Chapter 7, even if you do not have any or substantial assets or property.

Typically, most Chapter 7 cases involve individual debtors who have no assets to satisfy any portion of their creditors’ claims. These are called “no-asset” cases. In these cases, the court will hold a discharge hearing, and if there are no objections to the discharge filed by creditors, the court will cancel (discharge) the debts covered in the petition. The debtor is then no longer responsible for those debts.

When filing this type of liquidation bankruptcy, a person’s debts are placed into two categories: 1) secured debts, which are debts that are backed by collateral such as a mortgage, also referred to as priority debts; and 2) unsecured (nonpriority) debts, which are general obligations not backed by collateral, such as a credit card or medical bills.

Priority debts that are not subject to discharge, such as child support payments or taxes, will not be exempt. Creditors of secured debt will have to be paid if there are any assets. If there are no assets to be taken, the bankruptcy trustee will declare a no-asset bankruptcy and those creditors cannot therefore make claims on property or assets to pay outstanding debts.

If a case includes nonexempt assets, creditors can file a distribution claim within 90-180 days after the first creditors meeting, depending on the creditor. A bankruptcy trustee will help determine which creditors have legitimate claims and which will not be able to request assets for payment.

Unsecured debts, which make up the majority of most people’s debt, will have to be paid only if there are assets available to pay them, if they are not considered exempt, or if they are not subject to discharge.

If the bankruptcy trustee determines that all assets in the bankruptcy are exempt, he or she will generally declare a no-asset filing and no assets or property will be distributed.

To qualify for a Chapter 7 bankruptcy and dismissal of debts, a debtor’s income must be below the state’s median income level; if higher, the best option is to repay a portion of debts under a Chapter 13 plan.

Case Studies: Filing Chapter 7 Bankruptcy Without Assets

Case Study 1: No-Asset Bankruptcy

Sarah, a debtor with significant unsecured debts, decided to file for Chapter 7 bankruptcy. Upon assessment of her financial situation, it was determined that Sarah had no substantial assets or property that could be liquidated to satisfy her creditors’ claims. The court declared a no-asset bankruptcy, and Sarah’s unsecured debts were discharged without the need for asset distribution.

Case Study 2: Secured Debts Exempted

David faced overwhelming debt, including both secured and unsecured debts. However, his secured debts, such as a mortgage and car loan, were exempted as he had no equity in his property. David decided to file for Chapter 7 bankruptcy and provided accurate information about his financial status. The court declared a no-asset bankruptcy, and David’s unsecured debts were discharged while his secured debts remained unaffected.

Case Study 3: Creditors Unable to Make Claims

Lisa, a debtor with no substantial assets, filed for Chapter 7 bankruptcy. The bankruptcy trustee determined that there were no nonexempt assets available for distribution to creditors. As a result, the creditors were unable to make claims on Lisa’s nonexisting assets, and a no-asset bankruptcy was declared. Lisa’s debts were discharged without any distribution of assets.