Usually not. Certain property is exempt and may not be taken by creditors unless it is encumbered by a valid mortgage or lien. A person is usually allowed to retain their unencumbered exempt property in a Chapter 7 case. A person may also be allowed to retain certain encumbered property that is reaffirmed, redeemed or otherwise subject to an avoidable lien. Encumbered property is property against which a creditor has a valid lien, mortgage or other security interest.

Exempt property is property that is protected by law from the claims of creditors. However, if exempt property has been pledged to secure a debt or is otherwise encumbered by a valid lien or mortgage, the lien or mortgage holder may claim the exempt property by foreclosing upon or otherwise enforcing the creditor’s lien or mortgage. In bankruptcy cases, property may be exempt under either state or federal law. Exempt property typically includes all or a portion of a person’s unpaid wages, home equity, household furniture, and personal effects. Your attorney can inform you as to the property that is exempt in your case.

The trustee is a person appointed by the Department of Justice’s U.S. Trustee Program. To examine the person who filed the case, collect the person’s non-exempt property, and pay the expenses of the estate and the claims of the creditors. In addition, the trustee has certain administrative duties in a Chapter 7 case and is responsible for ensuring that the person filing performs the required duties in the case. A trustee is appointed to a Chapter 7 case, even if the person filing has no non-exempt property.

The law requires the person filing to cooperate with the trustee in the administration of a Chapter 7 case, including the collection by the trustee of the person’s non-exempt property. If the person does not cooperate with the trustee, the Chapter 7 case may be dismissed and the person’s debts will not be discharged.

It is usually converted to cash, which is used to pay the fees and expenses of the trustee, the claims of priority creditors, and– if there is any left– the claims of unsecured creditors.

If the person filing has no nonexempt property, a notice will be sent to the creditors advising them that there appears to be no assets from which to pay creditors, that it is unnecessary for them to file claims, and that if assets are later discovered they will be given an opportunity to file claims. This type of case is referred to as a no-asset case. Most Chapter 7 cases that are filed by consumers are no-asset cases.