Bankruptcy Liquidation

The Bankruptcy Liquidation Process - In a Chapter 7 bankruptcy proceeding, the trustee assigned to the case is responsible for liquidating any nonexempt assets. This means that he or she will take possession of any assets with nonexempt equity, reduce them to cash, and then distribute the cash proceeds to creditors.

Many Chapter 7 bankruptcy cases are deemed "no-asset" cases. In these types of cases, the bankruptcy trustee will abandon nonexempt assets after making a determination that the cash proceeds after liquidation are insufficient to warrant distribution to creditors.

To make a determination regarding whether to proceed with bankruptcy liquidation, the trustee may request additional documentation or information so that he or she can investigate the value of nonexempt assets.

If the bankruptcy trustee determines the value of nonexempt assets is sufficient for administration to creditors, he or she will decide the case is an "asset" case and will proceed with the bankruptcy liquidation process. This process is subject to the rights of any secured creditors, as well as the debtor's right to retain certain property pursuant to exemption laws.

If you are reluctant to turn over an asset to the bankruptcy trustee, discuss your options with your attorney. In some circumstances, the trustee may allow you to "purchase" the nonexempt asset from the bankruptcy estate. For example, if you own a motor vehicle with $1000 nonexempt equity, the trustee may allow you to keep the vehicle if you pay the nonexempt portion of $1000 to the bankruptcy estate.

However, the trustee is not obligated to enter into such an agreement. It is still imperative that you cooperate fully with the trustee and turn over any assets required for bankruptcy liquidation.

Exemption laws vary from state to state, therefore it is best to talk to an attorney in your area to determine what items you may be required to turn over to the trustee for bankruptcy liquidation. You may also want to check out the state links on the right for more information regarding bankruptcy Chapter 7 exemptions.

Common examples of assets that are subject to Chapter 7 bankruptcy liquidation include:

• tax refunds
• bank account funds
• stocks and bonds
• motor vehicles
• real estate
• jewelry
• antiques and collectibles
• cash value of some life insurance policies
• proceeds of certain types of lawsuits
• other personal property

The bankruptcy trustee will also investigate payments and transfers to creditors and other third parties. In some circumstances, he or she may determine that these are also assets of the bankruptcy estate and demand turnover from the creditor or other third party.

The actual liquidation process varies based on the type of asset that is turned over to the bankruptcy estate. Tax refunds, for example, are liquidated by depositing the refund check into the bankruptcy estate's bank account. Motor vehicles and other personal property, however, may require that the trustee schedule a bankruptcy auction and provide notice to all parties on the creditor matrix.

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