If you file for Chapter 7, the court can liquidate nonexempt assets and properties to pay back creditors, but what happens to your pets? Read our blog to find out more about pets, bankruptcy, and how to protect your furry friends.
Bankruptcy and Liquidation
There are many types of bankruptcy, but one of the most common options for individuals is Chapter 7. Chapter 7, also known as liquidation is a type of bankruptcy that leads to debt discharge after debts are paid by selling assets to create funds and pay back creditors.
During the liquidation process, all assets are put into two separate categories: exempt and non-exempt.
Exempt property includes things the court deems ‘necessary.’ For example, those who commute for work and live in a rural area without public transportation need a car. When an asset is exempt, it cannot be liquidated.
Non-exempt property includes everything but exempt assets. Property, assets, and holdings that are not exempt can be liquidated. For example, a baseball card collection is not necessary to create or maintain income and might be sold so the proceeds can go toward the individual’s debts.
So, are pets exempt from liquidation? Or will the court remove the pets and sell them to other owners?
Pets: Property or Not?
The most essential question when determining whether pets might be sold during liquidation is: are pets considered property.
Most pet owners would argue that pets are more like family members, but the reality is most institutions including the bankruptcy courts categorize pets as property. This means that when an individual reports their assets to the court, they must include all pets as well.
However, while all pets are considered property, not all of them are valuable enough to be liquidated. Most dog and cat breeds, rodents, and fish are valuable to their owners but not the court or the creditors. This means that these animals are likely to be exempt from liquidation.
On the other hand, purebred or rare animals with high value could be vulnerable to liquidation. Show dogs, exotic pets, and large animals are more valuable than a mut adopted from the pound. These animals have a high intrinsic value which makes them a valuable asset during bankruptcy.
Pet care is not factored into the total value of a pet, even though some animals require specialty foods, specific treatments, and are generally expensive to care for. While the care of a pet is not necessarily an important factor during Chapter 7, it could be important during Chapter 13.
Chapter 13 bankruptcy does not involve liquidation, but it does require the individual to make a list of their earnings and costs including pet care. If the dollar amounts necessary to care for a pet is more than the pet’s value, the court could recommend that the owner sell the animal. This is negotiable in most cases, but it may be necessary if the individual could not pay off their debt and keep their pet.
What Happens If a Pet is Liquidated During Chapter 7?
If a pet is classified as nonexempt during bankruptcy, the owner may be understandably concerned about its future. In most Chapter 7 cases, the court may request that the owner forfeit their pet and turn it over to the trustee who will supervise the sale.
In some cases, pet owners may be able to negotiate with the trustee to pay the full value of the animal instead of relinquishing it to the court. For example, purebred English bulldogs cost up to $4,000 on average and an additional $4,000 throughout their lifespan. Depending on the age of the dog, the court may value the animal between $4,000-8,000. The owner may offer to pay the court this amount and keep their pet.
Commercial and Farm Animals
It is important to note that not all animals are pets. Farm animals and animals used for commercial purposes are often exempt during Chapter 7 because they are necessary for the owner to maintain an income. A commercial animal serves a distinct purpose and is often part of a business model which is why it is likely to be exempt from liquidation.
For example, horses used as therapy animals for children are a part of a business model and are not simply pets. Likewise, beef, port, milk, and wool farmers depend on their animals to create revenue and farmers who use workhorses or mules during the harvest period depend on the animals to help them support their business model.
In addition to commercial animals, service animals have a specific purpose. Service animals and emotional support certified animals help their owners live comfortably and safely. Seeing-eye dogs are trained from a young age to assist their owners with transportation and basic tasks. Emotional support animals help owners who may be suffering from post-traumatic stress syndrome or mental illness heal over time.
Because service animals provide an invaluable service to their owners, the court does not subject them to liquidation. The bankruptcy court cannot take away someone’s medical equipment like a ventilator or insulin pump because both devises are necessary for survival. Similarly, service animals are essential to their owner’s survival and removing them from the owner would jeopardize their health and safety.
Bankruptcy exists to provide debt relief, and the court cannot act in bad faith and jeopardize a person’s life and health to discharge debt.
While some mixed-breed animals, and generic household pets are not valuable enough to liquidate, rare or valuable pets could be subject to liquidation during Chapter 7. However, animals used for therapeutic, medical, agricultural, or commercial purposes are exempt from bankruptcy.
While there are some strict rules regarding what the court can and cannot repossess or sell during Chapter 7, no outcome is guaranteed. The best way to avoid losing your pet is by enlisting the help of a legal professional to advocate for your best interests.
Contact the Law Office of Seni Popat, P.C. to find out how we can help you protect what matters most from pets to pensions and more.