Can I keep my stuff if I file for Bankruptcy?

Most of the time when I speak with my clients, there are 2 big concerns that my clients usually have when we are preparing for their bankruptcy case. First, what can I get rid of in a bankruptcy  and Second, can I keep the stuff that I already have.

The first concern is addressed in my other post, click here, which goes in to detail of the types of debts that can be discharged or wiped away in a bankruptcy.

This article will address the Second concern regarding what you can keep in your bankruptcy.

When a person files his bankruptcy, something called a "bankruptcy estate" is formed. The bankruptcy estate consist of all your "legal and equitable interest". Legal interest is where your name is on the title of that property, such as legal title on your house or car or whatever you have purchased under your name. An equitable interest consist of property that may not have your name on the legal title but you are in possession and using for your benefit that particular property. Example of equitable interest may be a car that you are driving and making the monthly payments and insurance, but due to financial reason, the car was purchased and in the name of your parents or 3rd party.

However, exception do apply to the bankruptcy estate. This means that there are property that you may have the legal title to but may still be excluded from your bankruptcy estate and not made part of your bankruptcy case. Specifically, if you only have "mere legal title" to the property, meaning the only relation you have to a particular property is only the title to the property, but have no "equitable interest", such as the mortgage is under someone else's name, the payments are made by someone other than yourself, someone else lives or uses that property for their benefit, someone else maintain the property and pays everything in relations to the particular property that you have legal interest in, than, the bankruptcy estate only includes to the extent your legal title but not any of the equitable interest in such property that you don't hold. For example, a car that is in the possession of your child, but the title is in your name.

In addition to the exception under the "bare legal title", a different set of exceptions apply  for married couples residing and filing their bankruptcy in a community property state. (This may or may not apply to all the community property states.) In Texas, the rule of community property upon marriage applies. Only few exceptions apply to the rule of community property that makes such property separate property, such as inheritance, gift and in certain personal injury damages. Although the general rule of community property encompasses all property acquired during the marriage, both the state and bankruptcy distinguish what type of community property can be included in a debtor's bankruptcy estate if only one spouse of the marriage files the bankruptcy. Specifically, in Texas, there are different levels of community property. There is the general or joint managing community property and special or sole managing community property. Joint managing community property is generally property that is acquired, accessible and used by both parties benefit. Contrarily, sole managing community property is property that was acquired during the marriage (hence "community property") but is in the sole possession, use and access of that particular spouse. Under Texas family law, depending on the type of community property, liabilities and debts arising out of the marriage may or may not subject the other spouse's sole managing community property.

Under Section 541(a)(2)(B) of the Bankruptcy Code, only property that is under the "sole, equal or joint mangement and control of the debtor" is included in the Debtor's bankruptcy estate. This section specifically excludes any of the non-filing spouse's sole managing community property. This means that if there is property that is only under the non-filing spouse's name and is only used by her, than that particular property would not be included in the debtor spouse's bankruptcy estate. To be safe, it should still be identified but an explanation should be provided.

Filing a bankruptcy requires careful analysis and understanding of all the important rules and procedures that may pertain to the filer's case. Specifically, when it comes to identifying the debtor's bankruptcy estate, a mistaken understanding of the do's and don'ts may harm the the debtor and his spouse, if married, where a careful understanding of the law could have prevented such miscalculation.

Consult the Houston Bankruptcy law firm of KIMLY LAW FIRM, PLLC, to assist you in your bankruptcy decisions.

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