Once a bankruptcy petition has been filed, a bankruptcy estate is created which includes all assets of the debtor. The bankruptcy trustee is then required to collect non-exempt property and reduce it to cash to be divided among creditors. Although the bankruptcy code broadly defines “property of the estate”, not all property in the possession or control of a debtor becomes a part of the bankruptcy estate.  In addition to statutory exemptions which allow debtors to protect assets from being taken by a trustee to satisfying creditors, the bankruptcy code wholly excludes certain property from being included in the estate.

11 USC 541 identifies specific property which is not included in a bankruptcy estate. Whether or not property can be excluded from the estate can be difficult to determine depending on the asset. The most common examples include funds used to purchase college tuition plans (i.e. 529 plans) (11 USC 514(b)(6); funds placed in an educational individual retirement account (11 USC 514(b)(5); property subject to a restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable non-bankruptcy law (11 USC 514(c)(2); and property a debtor controls solely for the benefit of an entity other than the debtor (11 USC 514(b)(1). Although property may also qualify as exempt, in order to properly protect your property, it is important to identify excluded property so as not to squander the limited exemptions. If unsure whether an asset should be excluded or exempted, you should consult with a bankruptcy attorney in your area.

 - Richard V. Stokan, Jr.