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  1. Bankruptcy Glossary
  2. Liquidation

What is Liquidation?

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 bankruptcy 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 partnerships
  • Pensions 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.