What happens in a Bankruptcy to the property that is not exempt?

The Bankruptcy property exemptions in Massachusetts recently changed to protect considerably more property of individuals from their creditors. When filing for Chapter 7 Bankruptcy this "exempt" property of the debtor is not included in the Bankruptcy estate, which means that it is not subject to being taken by the Trustee and used to pay your debts. In simpler language, exempt property is property you get to keep.

But what happens to property that isn't exempt?

If you file for bankruptcy and property that you own exceeds the exemptions then you have technically surrendered that property to the Trustee upon filing. In other words, by asking the Bankruptcy Court to help you with your debts, you have agreed to give them your property as well. The property that is not exempt is considered part of the Bankruptcy Estate and in a Chapter 7 Bankruptcy this property will be used to pay your creditors proportionally to the amount of debt they are owed.

If the non-exempt property is liquid funds (such as a bank account) then you will be forced to pay these funds to the trustee who will then take a percentage for their fees and pay the rest to the creditors. If the non-exempt property is non-liquid, such as a car or jewelry or a house, then the trustee will auction the property and use the proceeds of the auction to pay their fees and pay the rest to the creditors.