No, it does not mean you have no property, that you lost everything by filing Chapter 7.
Actually, it means that the trustee found no assets to be liquidated for the benefit of creditors.
Which is a good thing, you keep everything you had before you filed. Subject to paying any liens on the property, like the mortgage on your house or a car payment.
Exemptions are available for you to take in your property, to exempt it from creditors and the trustee.
In Michigan, we can choose between the Federal and state exemptions; usually the federal exemptions are better.
So, the legal fiction is, that the bankruptcy estate is created when the case is filed, and title to all of your property passes to the trustee appointed by the Court.
Nothing is moved physically, everything looks just the same.
And you exempt the property back from the trustee.
The exemptions you claim are filed as part of your bankruptcy schedules.
The 341 hearing, or creditors’ meeting, is scheduled, by the bankruptcy court for about 35 days after you file. The trustee presides over this hearing.
And has 30 days from the hearing to object to your exemptions.
If you have a house worth $100,000, but owe $100,000 on it (or, more likely these days, more than $100,000) there is no equity there, no asset, nothing to exempt.
A bankruptcy trustee basically has no greater rights in property than you have, so, if the mortgage was duly perfected under state law, it is effective against the trustee, who would have to pay it if he took over the house.
Now, trustees get a percentage of what they bring into a bankruptcy estate, so their incentive is to find property or claims that can be reduced to cash for the benefit of the creditors. That is the trustee’s job.
And, each case has to stand by itself. They cannot get paid for work they do on your case from money they made on another case.
So, they do not want to waste time chasing nothing.
They are not going to go after property unless they are sure there is money in it for the creditors.
So, what if your house is worth $100,000, and you only owe $80,000 on it?
So you have $20,000 equity, 100 minus 80.
That amount can be claimed exempt, you get to keep it.
Claiming exemptions is not something you should do on your own, rely on an expert.
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