The term bankruptcy estate refers to the property of a debtor in bankruptcy that is available to pay creditors. The statutory definition of bankruptcy estate is extremely broad, and contains very few exceptions.
Following the filing of a bankruptcy petition, the case creates an estate that becomes the temporary owner of the debtor's assets as well as property rights. The assets placed in the bankruptcy estate are governed by statute; however, the definition covers both tangible as well as intangible assets, including those that may be located in other jurisdictions such as real estate in other countries. Under certain conditions, the trustee may also claim assets acquired by the debtor after the bankruptcy case is created.
The definition of what is included in a bankruptcy estate is so broad, it's easier to list the property excluded from the estate, such as:
- Retirement plans and pensions covered by ERISA such as a 401(k) and 403(b) account.
- Social Security payments.
- Wages withheld by employers to pay for benefits such as health insurance programs.
- Property obtains more than 180 days after filing the bankruptcy case.
- Property used as collateral for a loan and held by a licensed lender.
- Property held by the debtor, but owned by another party.
- Money placed in educational accounts such as a Coverdell or 529 college savings plan.
Note: If the debtor is also the beneficiary of a trust with a spendthrift provision, the property held in that trust may also be excluded from the bankruptcy estate.
A trustee is placed in charge of managing and distributing the assets to creditors. In the case of Chapter 13, the trustee will work with the debtor to create a repayment plan, which includes both collecting money from the debtor and distributing it to creditors. In the case of Chapter 7, the trustee will liquidate assets placed in the bankruptcy estate, and distribute the proceeds from the sale of the assets to creditors.