Asset liquidation is sometimes part of the Chapter 7 bankruptcy process. Those pursuing a Chapter 7 filing need to provide the courts with a comprehensive inventory of their assets, in addition to providing information about their income and the debts they hope to discharge through the bankruptcy filing.
Many people call Chapter 7 bankruptcy “liquidation bankruptcy,” as the court-appointed trustee can liquidate assets to repay creditors before the filer becomes eligible for a discharge. Is some property liquidation inevitable when preparing for a Chapter 7 bankruptcy?
Most filers can avoid liquidation entirely
Contrary to what people frequently assume, asset liquidation is not mandatory. Those filing for personal bankruptcy can exempt assets using property protections enshrined in Indiana state law. Indiana does not allow filers to use federal exemptions, but state exemptions cover many forms of property.
Exemptions allow people to preserve most, if not all, important resources during a divorce. Home equity, vehicle equity, house furnishings, trade tools and even retirement savings are potentially exempt from asset liquidation requirements.
Filers who prepare thoroughly with a lawyer have the best chance of optimizing their use of bankruptcy exemptions and preserving their resources. While liquidation is mandatory in cases where filers cannot exempt all of their assets, most people who pass the means test also have personal holdings that fall below the threshold for full exemption during a Chapter 7 bankruptcy.
Reviewing an inventory of resources with a lawyer can help those considering a Chapter 7 bankruptcy filing determine if they are at risk of asset liquidation. The right approach to bankruptcy can maximize financial relief while minimizing any risks associated with the process.
