The 5% Asset Case
In roughly 5% of Chapter 7 cases, the trustee identifies non-exempt assets -- property whose value exceeds what exemptions protect. In these cases, the trustee may liquidate (sell) the non-exempt property and distribute the proceeds to creditors.
What Gets Liquidated
The most common targets: excessive home equity (beyond the homestead exemption), valuable paid-off vehicles, large bank account balances, investment accounts (non-retirement), rental properties, valuable collections (art, coins, firearms), second homes or vacation properties, and pending lawsuits or insurance claims.
The trustee sells these assets, deducts administrative costs, and distributes the remainder to unsecured creditors. You receive the exempt portion in cash.
Pre-Filing Planning
Legal pre-filing planning can protect assets. Common strategies: spending non-exempt cash on exempt items (prepaying mortgage, buying needed household goods), converting non-exempt property to exempt forms, timing your filing to minimize non-exempt cash (e.g., filing before a tax refund).
Important: Pre-filing planning must be done carefully and honestly. Converting assets with intent to defraud creditors can result in denial of discharge. Work with an experienced bankruptcy attorney.
When to Consider Chapter 13 Instead
If you have significant non-exempt assets, Chapter 13 may be a better option. In Chapter 13, you keep all your property but pay creditors at least the value of what they would have received in Chapter 7 liquidation. See chapter7vs13.org for a detailed comparison.
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Last updated: April 2026. Not legal advice.
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