Bankruptcy Basics

The bankruptcy provisions that state courts most often confront involve automatic and non-automatic stays and dischargeability of debts. To understand these provisions, one must first learn three bankruptcy concepts: (a) property of the estate; (b) property of the debtor; and (c) claims.


"Property of the estate" describes the assets in a bankruptcy proceeding that are to be used to satisfy pre-filing or pre-confirmation debts and the costs of the bankruptcy proceeding. But for the bankruptcy filing, these assets would have belonged to the debtor.

In a chapter 7 case, property of the estate is defined by US Bankruptcy Code Section 541 as "all legal and equitable interests of the debtor in property as of the commencement of the case." Some assets, although initially characterized as property of the estate, later exit this category when they are exempted by the debtor, abandoned by the trustee as burdensome or inconvenient, redeemed by the debtor, or sold by the trustee. In chapter 7, Section 541 excludes from property of the estate all of an individual debtor's earnings from post-petition services.

The Section 541 definition of property of the estate applies to chapter 13 cases too. However, individual debtors are expected to fund their repayment plans with post-petition income. Consequently, chapter 13 expands the definition of property of the estate.

The next concept is "property of the debtor." Property of the debtor includes all of the property owned by the debtor before the bankruptcy filing or acquired by the debtor after the filing that is statutorily excluded from property of the estate. In addition, property of the debtor includes all property exempted or redeemed by the debtor as well as property abandoned by the trustee to the debtor.

The final concept is a bankruptcy "claim." A claim is a creditor's right to payment, whether or not the right is reduced to judgment, unsecured, unliquidated, unmatured, contingent or disputed. Even a right to equitable relief for breach of a "performance" may be a claim, if a right to payment is an alternative remedy for the breach of performance giving rise to the right to equitable relief. This very broad definition of "claim" allows a debtor to discharge debts that many people would not even consider debts yet. Thus, this broad definition of a "claim" benefits the debtor. Source: American Bankruptcy Institute.


Warmest Regards,

Bob Schaller


Your Bankruptcy Advisor Blog
By: Attorney Robert Schaller (Bob's bio) of the Schaller Law Firm

Bob is a member of the National Bankruptcy College Attorney Network, American Bankruptcy Institute and the National Association of Consumer Bankruptcy Attorneys.

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