What Does Liquidating Assets in Chapter 7 Bankruptcy Entail?
When someone petitions for relief under Chapter 7 bankruptcy law, the process leads to what is commonly referred to as liquidation. This is the conversion of assets into cash. If you're pursuing a Chapter 7 filing, it's a good idea to understand what liquidating assets will entail.
Appointment of a Trustee
Assuming your petition for bankruptcy is granted, the judge will appoint a trustee. This person is typically an attorney with a background in bankruptcy, an accountant, or an auditor.
A trustee has two mandates. Their primary mandate will be to recover as much money for the creditors as possible by seizing and selling assets.
Secondly, the trustee is responsible for adhering to the orders of the court. For example, a petitioner might ask the court to let them keep their car because they need it for work. If the judge declares the car exempt, the trustee has to follow those orders regardless of their fiduciary obligation to the creditors.
Selling Non-Essential Assets
Disposable assets will be sold, and the proceeds will be distributed to your creditors. As previously noted, you will have the opportunity to petition the court to hold onto any assets that might be essential. For example, you'll be able to keep any work clothes and tools. Similarly, you can retain a practical vehicle for driving to work. The same goes for basic household needs, such as furniture, dishes, cookware, and appliances.
The judge has wide discretion to accept or reject these requests. You probably won't be able to get an exemption for anything that's expensive, such as a sports car, although the court may sell the car and provide you with a portion of the proceeds for a more practical one.
Also, some states allow exemptions up to a specific cash value. If you have very few assets, you might be able to retain a few luxury items.
Generally, all accounts are taken. This means things like checking, savings, and brokerage accounts. You will be able to hold onto money from special classes of assets. For example, nearly all personal injury settlements and judgments are protected from bankruptcy.
Discharge of Debts
The trustee will inform the judge when they've run out of non-exempt assets to liquidate. Once the judge accepts the trustee's statement, all remaining debts that were accepted by the court will be discharged. This means you will no longer owe them. Notably, some secured debts, usually meaning car and home loans, will not be discharged.
To learn more, contact a bankruptcy attorney near you.