The majority (over 90%) of Chapter 7 cases filed are determined not to have assets that can be administered because there is no equity in them or they are protected by the applicable law.
For those few cases where there are assets that can be liquidated, the Chapter 7 trustee sells these assets to raise funds to repay a dividend to creditors. The remaining portion of the debt that is not paid becomes discharged at the end of a case.
Are you planning to file for Chapter 7 bankruptcy in California soon?
A Chapter 7 bankruptcy lawyer will guide you through every stage.
Still, it’s important to understand how this and other aspects of the process work to minimize the stress of filing for bankruptcy. Learning about the Chapter 7 liquidation of assets will provide insight into what to expect if a Chapter 7 trustee determines that there are assets that can be liquidated to provide a dividend to your creditors.
Read on to learn how this part of the Chapter 7 bankruptcy process plays out.
Beginning by Filing for Chapter 7 Bankruptcy
Before the Chapter 7 liquidation of assets starts, a person must begin by filing for Chapter 7 bankruptcy. Unlike Chapter 13 bankruptcy, which helps people eliminate debts by setting them up with affordable monthly repayment plans, this type of bankruptcy enables them to discharge the majority of their unsecured debts in many cases.
Filing for Chapter 7 bankruptcy does not normally require any repayment of your debts. As with any bankruptcy filing, when your case is filed, there is an automatic stay that arises.
This stay will:
- Stop creditors from trying to collect debts from you.
- Prevent creditors from foreclosing on or repossessing your assets.
- Give you a chance to negotiate with creditors and/or discharge unsecured debts.
Research the Chapter 7 bankruptcy basics to ensure this option makes sense based on your financial situation. As long as you pass the means test for Chapter 7 bankruptcy, you can choose this option and take full advantage of its many benefits.
The Bankruptcy Estate Overseen by a Chapter 7 Trustee
Once you file for Chapter 7 bankruptcy, the majority of your assets are exempt, that is protected under applicable laws.
Exempt assets generally cannot be liquidated by the Chapter 7 trustee.
California provides many liquidation exemptions for those filing for bankruptcy.
Examples include exemptions for:
- Primary residences
- Basic vehicles
- Furniture and other essential household goods
- Clothing
- Retirement accounts
Non-exempt assets can be liquidated by the Chapter 7 trustee to repay your creditors.
Examples of assets that could be non exempt include:
- Vacation homes
- Luxury vehicles
- Expensive artwork and other collectibles
- Valuable jewelry
- Cash reserves
A bankruptcy trustee oversees all these assets throughout your case. They also have many other responsibilities during bankruptcy cases, such as reporting signs of bankruptcy fraud and identifying any assets you might try to conceal from a court.
A Chapter 7 trustee is also responsible for the asset liquidation process in your case.
Selling Non-Exempt Assets and Repaying Creditors
The good news for those filing for Chapter 7 bankruptcy in California is that the state is generous in allowing liquidation exemptions. In most cases, debtors don’t have any non-exempt assets to sell off to repay creditors.
If your bankruptcy case falls into this category, a Chapter 7 trustee will file a report of no distribution. This will indicate that you didn’t have any non-exempt assets that a trustee could sell to raise funds to repay creditors.
Otherwise, a Chapter 7 trustee will take the lead when it’s time to sell your non-exempt assets.
Here are several ways a trustee might sell your assets:
- Listing real estate for sale through a broker
- Auctioning assets off through an auctioneer or auction house
- Selling assets directly to interested buyers
At the same time, a trustee will seek approval from a bankruptcy court for each sale and keep creditors informed throughout the Chapter 7 liquidation of assets. The trustee will also distribute the proceeds from the sales of assets to creditors based on their claims.
Secured creditors who have a lien against the asset being sold are typically paid first out of the sale of that particular asset. Creditors may object to these sales if they feel a trustee is selling assets for too low a price, but if the trustee has undertaken adequate marketing efforts, those objections can be overruled.
Discharging Unsecured Debts
In some cases, the Chapter 7 liquidation of assets will generate enough profits to repay your debts. In others, the liquidation process might barely scratch the surface.
If you’re still left with a portion of your debts at the end of the liquidation process, they will be discharged with no further obligation to be repaid.
These debts are usually unsecured forms of debt.
A few prime examples of this are:
- Credit card debt
- Personal loan debt
- Medical debt
Debts stemming from criminal activities, like fraud and embezzlement, may not be dischargeable, either. You must prepare to deal with them accordingly instead of relying on bankruptcy to erase them.
Additionally, creditors may choose to challenge the dischargeability of debts when you file for Chapter 7 bankruptcy. If they decide to do this, they must file a formal lawsuit against you within a specified time period.
After a complaint is filed, a bankruptcy court will hear arguments from you and any creditors who don’t feel their debts should be discharged and weigh the applicable evidence. After hearing from both sides, a bankruptcy judge will decide whether to discharge the debts in question.
Are You Still Confused About the Chapter 7 Liquidation of Assets?
The Chapter 7 liquidation of assets can be confusing in many cases. If you’re having trouble understanding what will happen during this process, Janus Law is here to offer the necessary assistance.
We can also lend a hand with many other aspects of the Chapter 7 bankruptcy process. We would love to show you how to go about breaking the cycle of debt once and for all.
Contact us at (818) 672-1778 today to speak with a Chapter 7 bankruptcy lawyer.
- Eligibility Requirements for Chapter 7 Bankruptcy Explained - January 29, 2025
- Understanding the Chapter 7 Asset Liquidation Process - January 24, 2025
- Chapter 7 vs. Chapter 13 Bankruptcy: The Main Differences - December 27, 2024
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