Bankruptcy Chapter 7 & 13

McDonald Law
Offices PLLC

Copyright Notice

On this page:
FAQ Topics
  Stopping Creditors
When, Where & What
  to File

Debts Discharged
Child Support &
  Spousal Maintenance

Spouses & Joint Debts
Listing Creditors
Preference in
  Paying Creditors

Court Meeting
Property Lost
Tax Effect
Secured Debts
Changes &
  Chapter 13 Plan

Missed Plan Payments
Dismissed Cases
Credit after Bankruptcy

Property Lost in Bankruptcy

What tax refunds will I be able to keep?

The Internal Revenue Service and the Arizona Department of Revenue will keep refunds for taxes withheld from income prior to filing (usually the first return filed after the bankruptcy is filed) to pay taxes you owe, even if the tax will be discharged.

The Chapter 7 trustee can take any refund which you are owed on the day that your case is filed. There are two situations where the trustee may take your refund:

  1. If you have not received your refund from a previous tax year when your case is filed, the Chapter 7 trustee may take the entire refund.
    Example: If you file Chapter 7 in April, 1999, and you have not received and spent your 1988 refund, the Chapter 7 trustee will be entitled to the entire 1998 tax refund.
  2. The Chapter 7 trustee may take part of tax refunds for the year in which the Chapter 7 is filed. The amount which he can take will be pro-rated based on the number of months which have passed on the date that the Chapter 7 is filed.
    Example: If you file Chapter 7 in April, 1999, 4 of the 12 months have passed when you filed. The Chapter 7 trustee's share is 4/12 (or 1/3) of the tax refund. You will have to pay the Chapter 7 trustee 1/3 of the refund when you receive it.

In Arizona, the Chapter 13 trustee does not ordinarily take any tax refunds, but your plan payments may be affected by the amount that a trustee could take had you filed Chapter 7. [7-99]

When filing Chapter 13, can they ask you to surrender any of your property?  We have worked hard to get 2 houses, our cars, a boat, and a jet ski. Six months off work due to complications in pregnancy and the renters up and leaving have left us behind in some of our payments.  I want to pay all of our creditors what I owe them, I am just looking for help in getting caught up and out of debt without losing anything.

In the vast majority of Chapter 13 cases we file, nothing is taken by the Trustee to be distributed to creditors.  You can ordinarily keep property you own such as cars, boats, and jet skis, but the value of these items may affect the amount which has to be paid to your creditors.

If the houses, car, boat and jet ski are financed, the result will be different. While the trustee will not take this property, you would lose the property if you are not able to pay the financing on the property. Whether your plan can pay the loan secured by the property depends upon the kind of property it is.

  • You can keep your home. The house in which you live is generally considered essential to the Chapter 13 plan. Your plan can provide for the curing of an arrearage in mortgage payments while you make only the mortgage payments which become due after the case is filed. The value of the home will not affect the amount of your plan payments unless your equity exceeds the homestead exemption ($100,000 in Arizona).
  • You can keep your car. A car for each spouse is usually also considered essential to the completion of the plan. Chapter 13 Plans routinely provide for payment of vehicles. The value of the car will not affect the amount of your plan payments unless your equity exceeds the exemption available for vehicles ($1,500 for each spouse in Arizona).
  • You can keep income producing property. A Chapter 13 Plan can provide for the curing of the arrearage on income producing property. Payments on real property which become due after the case is filed are generally paid outside of the plan. The value of the property will affect the amount of the plan payments.
  • You can keep luxury items only if your plan pays all debt. The boat and jet ski are considered luxury items. You will not be able to pay for these items paying for them reduces the amount other creditors will receive.
        In a typical Chapter 13, you would pay only a small portion of unsecured debt (such as credit card debt). You would not be allowed to make payments on a luxury items such as a boat or jet ski unless you pay the full balance of the unsecured debt.
        If you propose a Chapter 13 Plan that pays off all the unsecured creditors, you will be allowed to continue to make payments on the luxury items.  You will not have to pay interest on on the unsecured debt.


If a debtor has a lawsuit pending (i.e, automobile accident claim), does the debtor have to declare it in his bankruptcy?  Do proceeds from a settlement become property of the bankruptcy estate and go to the creditors?

A debtor is required to list all property or assets in which he or she has an interest at the time that the bankruptcy is filed.   An automobile accident claim which is the basis for a pending lawsuit is an asset and should be listed.

The proceeds from that lawsuit can be taken by the Trustee for the benefit of the creditors unless they are exempt.  The bankruptcy code allows each state to establish its own exemption in bankruptcy, or to allow debtors to claim federal exemptions.  Depending upon the state law, exemptions which might apply could include recover for damage to the vehicle, for lost wages, and in some cases certain dollar amount.

If the court should determine that the failure to disclose such an asset is material and willful, the debtor could be denied a discharge in bankruptcy.  � 727(a)(2).  The denial of the discharge does not change the ability of the credit to take and liquidate assets which the debtor failed to disclose.  In addition, by omitting this information from the schedules, the debtor could be committing perjury and bankruptcy fraud.  It has been my experience that it is quite common for the insurance company that may pay the claim to advise the Trustee of the settlement.


What happens to the property that is not exempt, but you want to keep?  Do you have an opportunity to purchase it for fair market value before the trustee sells it to pay your debtors?

You are ordinarily able to keep all property, exempt or not, in Chapter 13 (although the value of non-exempt property may affect the amount of your plan payments) so I assume that you are asking about a Chapter 7 liquidation bankruptcy.

In Chapter 7, the trustee attempts to get as much money as he (or she) can from your non-exempt property.  He does this, not to be mean, but because it is his job -- he has been appointed by the court to get as much money for your creditors as he can.  He gets paid a percentage of the money he is able to get for your creditors, so you can expect that he will take his job seriously.

Whether he will take property from you to sell it is governed by his judgment of whether sufficient money will be realized from the property to cover his expenses and pay for his time.  We have found in our cases that the trustees seldom take any property unless they can expect to realize around $1,000 or more from all of the property taken from a single estate.

Some kinds of property is very inexpensive for the trustee to collect.  All he has to do to collect cash, bank accounts, and tax refunds is to require you to turn it over to him.  Other property can easily be liquidated because there is a ready market for it -- you car, for example.  Some things may be either expensive or difficult to handle -- pets and livestock, for example, eat while they are waiting to be sold -- and he may be more reluctant to take that kind of property.

11 U.S.C. � 363 is the code section that authorizes the trustee to use, sell, or lease your property "after notice and a hearing."  This means that if he will either have to send a notice of a sale date.  The notice varies from trustee to trustee, but will be much like an announcement of a public auction of the item at a particular date and place.  Ordinarily, the person who has filed bankruptcy will also be notified so that they can also bid on it.  In most cases, the trustee will require that the payment be in cash at the time of the sale, but we have had some trustees accept payments over a few months.


Reading your material about what is exempt I noticed that only houses and mobile homes are exempt.  I have been living in a travel trailer for the last 5 years and have been making payments on it.  Would this be considered my home and would it be exempt? This the only home I have.  Thank you.

ARS � 33-1101 which defines the homestead specifically exempts a "mobile home." ARS �33-1409(14) which defines mobile homes excludes travel trailers and even "park model" trailers from the definition.  Although these statutes would not prevent you from claiming your travel trailer as exempt, should that exemption be challenged it is likely that your claim would not be allowed.

If you have equity in the travel trailer which you want to protect, you may want to consider Chapter 13.  Not only does Chapter 13 give you the option of dismissing your case if you find that your exemption is not allowed, you can keep non-exempt property such as your travel trailer.  Keeping non-exempt property may require that your plan payments be greater than they would be if you were not keeping that property.  [6-16-03]

These questions and answers are not intended as legal advice or as a statement of the law.  They are intended to suggest areas which you should discuss with your attorney.

Although Bankruptcy law is Federal code applicable to all states, the way it is applied may depend upon state law and varying practices of the courts, trustees, and even attorneys. As a result, some of these answers are directly applicable only in cases filed by our office in Arizona.

This page was last revised: 08/07/05