Can I Dismiss My Chapter 7 Bankruptcy If the Trustee Wants to Sell My Property? (2024)

If you file for Chapter 7 bankruptcy and later realize you will lose valuable property, can you dismiss your case? Unfortunately, if the bankruptcy trustee wants to sell your nonexempt property in Chapter 7 bankruptcy, you usually cannot dismiss your case to save your assets. However, you might be able to keep your property if the court allows you to convert your case to Chapter 13 bankruptcy or if you buy back your property from the trustee.

The Trustee Can Sell Your Nonexempt Property in Chapter 7 Bankruptcy

Chapter 7 bankruptcy is commonly called liquidation bankruptcy because the trustee appointed to administer your case can sell your "nonexempt" property or property not protected by bankruptcy exemptions.

When you file for Chapter 7 bankruptcy, your assets become the property of the bankruptcy estate and can be sold for the benefit of your creditors. The Chapter 7 trustee's job is to determine whether any of your property should be sold to pay back your debts.

The trustee is not allowed to sell all of your property. Each state and the federal system has a set of bankruptcy exemptions that will enable you to keep a certain amount of property in Chapter 7 bankruptcy. If all your property is exempt, the trustee can't liquidate any of your assets.

You Don't Have an Automatic Right to Dismiss Your Chapter 7

You can often only dismiss your Chapter 7 bankruptcy for "cause" or a good reason. If you don't have any nonexempt property that belongs to creditors under bankruptcy law and have a valid reason for requesting dismissal, many bankruptcy courts will allow you to dismiss your case voluntarily.

But if you are trying to dismiss your bankruptcy to keep the Chapter 7 trustee from selling your nonexempt assets, the trustee or your creditors will object to your dismissal request. In general, unless you have an extremely compelling and valid reason other than trying to save your property, many bankruptcy courts won't allow you to dismiss your Chapter 7. This situation is especially true if you have nonexempt assets that can be used to repay your creditors or if the dismissal of your case will "prejudice" or harm your creditors in another way.

Can You Still Keep Your Nonexempt Property?

Under certain circ*mstances, even if the court doesn't let you dismiss your Chapter 7 bankruptcy, you might be able to keep your property.

You Might Be Able to Convert to Chapter 13 Bankruptcy

Most Chapter 7 debtors have a one-time right to convert their case to Chapter 13 bankruptcy. In Chapter 13 bankruptcy, you can keep all your property in exchange for paying back a portion of your debts through a Chapter 13 plan. You might be able to keep your nonexempt property if the court allows you to convert your case.

However, the United States Supreme Court has determined that the right to convert isn't absolute in instances of bad faith. Examples of bad faith typically include concealing assets, lying on your bankruptcy papers, or otherwise trying to abuse the bankruptcy process. If you file for Chapter 7 in bad faith, the court might not allow you to convert to Chapter 13.

Consider Offering to Buy the Property Back

If the trustee plans to sell your property, you can offer to buy it back. Because the trustee will have to incur costs to store and sell your assets, they will typically be interested in selling to you if you make a reasonable offer. Also, if the trustee wants to proceed with a public auction, you can attend and bid on it.