As a condition of filing for Chapter 7 bankruptcy protection, you must disclose all of your assets, including patents, to the bankruptcy court. After disclosure, a patent may be subject to seizure by the bankruptcy trustee if it is not properly claimed as exempt under state or federal law. Depending on the availability of exemptions, you may be able to keep some or all of your interest in a patent.

Schedule B

Among the bankruptcy forms that you must fill out is Schedule B. Schedule B requires the disclosure of all of your personal property assets and is a is a guide for the bankruptcy trustee to quickly review all of your assets. Among these assets is a patent. Thus, prior to filing a bankruptcy case, you must list your patent, the nature of the invention and the approximate value of the patent.

Schedule C

Schedule C is the most critical document for a patent owner in bankruptcy. Schedule C is the document in which you list all of the property you wish to claim as exempt. Exemptions are based on federal and state statutory law. There are no specific exemption laws for patents or other intellectual property rights. However, a patent may be claimed as exempt under other statutes such as the "wild card" statute, which allows exemption for any type of property up to a certain value.

Trustee Seizure and Liquidation

The bankruptcy trustee has the power to seize your patent (if it is not fully exempt) and sell it to the highest bidder. The proceeds are then distributed to your creditors. For example, if you declare the value of your patent as $10,000 in Schedule B, and you are only able to claim a wild card exemption in the patent for $5,000, the trustee will sell the patent and give you $5,000.

Abandonment

The bankruptcy trustee also has the ability to abandon property of the bankruptcy estate that is worthless, claimed as fully exempt or cannot be sold. If a patent is not licensed to a third party, it is often difficult to value and sell a patent on the open market. For this reason, the trustee may believe it is not worth his time to find a buyer for the patent. The trustee will then abandon the patent back to you. Abandonment transfers ownership back to the debtor from the bankruptcy estate.