What is a Liquidation Bankruptcy?

If you’re facing seemingly insurmountable debt, the idea of bankruptcy is probably both enticing and confusing. Most people know very little about how it works or what filing for bankruptcy means, and once you start investigating, there’s a good chance you’ll only end up feeling more confused. There are so many different terms and titles that it is easy to be overwhelmed. Let’s clear up one of the most common areas of frustration – the question of what a liquidation bankruptcy is, and what liquidation actually means.

Liquidation bankruptcy is a term that is interchangeable with the term “Chapter 7.”  Different types of bankruptcies are called “chapters” because each type is explained in a different chapter of the federal Bankruptcy Code.  Chapter 7 bankruptcies involve a trustee liquidating — or selling — property owned by the debtor so that the monies raised can be used to pay back their creditors. That is why Chapter 7 bankruptcy is also known as a liquidation bankruptcy.

Chapter 7 bankruptcies are particularly advantageous for debtors who do not own significant assets — after all, if there is nothing to sell off, then the only thing you have to lose is your debt. Though debts such as student loans, child support and some taxes cannot be discharged, other amounts owed are entirely wiped out.  Not everybody is eligible to file a Chapter 7 bankruptcy though. When you file for bankruptcy you will need to provide a complete accounting of your income and assets, and if it is determined that you are above the threshold to qualify then you will likely need to turn to a Chapter 13 bankruptcy that allows you to avoid liquidation but requires that you restructure and repay your debts.

Even if you are eligible for a liquidation bankruptcy, you may be able to hold on to certain assets. There are exemption laws that vary from state to state, and that outline what property you can keep when you file for bankruptcy and which are eligible for liquidation.

Many debtors are able to file for bankruptcy without liquidation being an issue. An experienced bankruptcy attorney can review your situation and give you an idea of which of your assets would be protected should you qualify for and decide to proceed with filing for Chapter 7. For more information, contact our office today to set up a convenient appointment.