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What is liquidating assets in bankruptcy?

On Behalf of | Sep 30, 2023 | Chapter 7 And Chapter 13 Bankruptcy |

The United States Courts reported 387,721 bankruptcy filings in 2022. One of the most important aspects of this process is liquidating assets.

If you file Chapter 7 bankruptcy, you should understand what liquidation is and how it works.

Liquidation defined

Asset liquidation in bankruptcy ensures that creditors receive a fair and equitable distribution of the debtor’s available assets. The process involves selling non-exempt assets to repay debts.

Non-exempt vs. exempt assets

The bankruptcy trustee, who oversees the case, is responsible for liquidating non-exempt assets to repay creditors. Non-exempt assets are possessions or properties not protected under bankruptcy law or exemptions.

You get to retain ownership over exempt assets. They typically include essential items, such as a primary residence, a car, clothing and household goods, up to certain values prescribed by state and federal laws.

The liquidation process

The trustee will sell your non-exempt assets and distribute the proceeds among your creditors. Trustees may not sell all assets allowable. They focus on those with significant value that can make a meaningful contribution to debt repayment. Once complete, the process usually signals the end of the bankruptcy process, and the court will issue a discharge of the case.

Asset liquidation can be a complex and heavily regulated process. While it is most common in Chapter 7, it may also occur in other types of bankruptcies, and the specific rules and procedures may vary in those other cases. It is essential for debtors to understand the implications of asset liquidation in bankruptcy and how it may impact their financial situation and their creditors’ claims.

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