Chapter 7 Bankruptcy is known as a "liquidation" bankruptcy and creditors will be paid from the liquidation of the debtor's assets.
Non-exempt assets are turned over to the trustee who is responsible for selling the non-exempt assets and converting the profits to be distributed to the creditors. If the liquidated claims do not generate enough funds to repay the creditors the remaining debt is erased. Chapter 13 Bankruptcy does not liquidate assets but allows the debtor to repay a portion of their debts with a 3 to 5 year Chapter 13 Bankruptcy repayment schedule.
The Bankruptcy Code allows filers to keep a portion of their assets in order to give debtors the opportunity for a fresh start. All non-exempt assets are liquidated in Chapter 7 Bankruptcy, but there are certain exempt assets which can be kept whether the filer files Chapter 7 Bankruptcy of Chapter 13 Bankruptcy. States have their own list of bankruptcy exemptions which may be used (in some cases) instead of the federal exemptions.
Common exemptions can include:
- Homestead exemptions
Personal property exemptions such as horses, bicycles, firearms, cattle, burial plots, a car
Insurance which can include life insurance and health insurance
Property of business partnershipsPensions including those of firefighters, police officers, judges, county and district employees
Public benefits including unemployment compensation, medical assistance and worker's compensation
Tools of the trade including farming equipment and books
Earned but unpaid wages and unpaid commissions
The types of assets which can not be liquidated vary by state. Property that is exempt under federal bankruptcy laws is outlined in 11 U.S.C. § 522(b). States have also adopted their own exemptions. Talk to a bankruptcy lawyer prior to filing bankruptcy to determine which of your personal assets are exempt from the liquidation process.
More Help on Liquidation
- Chapter 13 Repayment Plan - The Chapter 13 Bankruptcy Repayment Plan can be quite confusing when you are unsure of the details. Here we highlight some of the major questions and topics regarding the Chapter 13 Repayment Plan - read more
- Chapter 7 Bankruptcy - Chapter 7 Bankruptcy is a liquidation or \"straight\" bankruptcy. It is the quickest, easiest and least expensive type of bankruptcy method to discharge debts. - read more
- Exemptions - Bankruptcy exemptions are a list of all the assets, personal items and goods that can not be liquidated in Chapter 7 Bankruptcy or sold in Chapter 13 Bankruptcy to repay creditors. - read more