Am I required to liquidate my assets in a Chapter 7 bankruptcy?

Learn what happens to you and your assets if you file a Chapter 7 bankruptcy.

While there are certain classes of property which are considered exempt from bankruptcy—or which you do not have to liquidate—anything that is not exempt, or which is not already fully encumbered by a lien (such as by a mortgage, or by security interest worth as much as the property) may be sold to pay creditors. That’s how a Chapter 7 works: your assets are liquidated; the creditors get as much as they reasonably can; then the balance of the debts are discharged (go away), which is what lets you get your fresh start.

In Practice

While in theory assets are supposed to be liquidated, in reality most Chapter 7 filers keep all of their property. This happens for several reasons: the property has no equity, any equity in the property is protected by an exemption, or the trustee doesn't think the sale proceeds (after deducting exempt equity, costs of sale, and the trustee's commission) will be enough to merit distributing to creditors.

by: , J.D.

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