In broad strokes, here’s how it works when you file for bankruptcy:
When your Salt Lake City bankruptcy attorney files your bankruptcy petition, a fictional “bankruptcy estate” is created. This estate includes everything you own that is not covered by the exemptions applied by your bankruptcy lawyer. In practicality, everything you own will be covered by an exemption – with the occasional exception for assets that are both highly valuable and liquid, such as real estate and vehicles.
To understand exactly how bankruptcy works, though, you have to imagine this as though you no longer own anything other than your exempt assets. Instead, the court-appointed bankruptcy trustee steps in as a sort of referee, and manages your assets for you. The trustee allows you to keep the assets that have been deemed by law as necessary to you (i.e. they are “exempt” from the bankruptcy estate because the debtor needs them). These assets include necessities such as clothing, food, transportation, shelter, and family heirlooms. Each state has different laws about what property can be exempt, and unfortunately, as your Salt Lake City bankruptcy lawyer will tell you, Utah’s laws are very stringent. For example, in Utah, a debtor can claim as exempt only $20,000 in ‘homestead’ real estate while many other states allow more than $100,000 in real property exemptions! Likewise, Utah allows only a $2,500 dollar per debtor exemption for cars, while many other states allow up to twice this much! You shouldn’t worry too much about this though. Even though Utah is stingy with bankruptcy exemptions, in practicality it is rare for a debtor to lose any of their assets. Especially in a Chapter 7 bankruptcy.
Any assets that are not covered by an exemption will then become part of your bankruptcy estate. The trustee’s job is to manage these assets for the mutual benefit of your creditors. In other words, it is the trustee’s job to sell the assets and distribute the proceeds (if there are any) to your creditors. After the trustee does that, your debts will be discharged – and you will no longer be responsible for paying them. You can then move on with a fresh start and no financial burdens!