What Happens During an Asset Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is commonly known as “liquidation bankruptcy,” as the bankruptcy trustee has the right to sell any of the debtor’s assets or property that isn’t covered by an exemption. If you’re thinking about filing for bankruptcy, you may be scared of losing items you need or want to keep through a sale by the bankruptcy trustee. While it may not seem like it at first glance, liquidation may end up benefiting you in the long run. Read on to learn about liquidation in Chapter 7 cases, and speak with a skilled Maryland bankruptcy lawyer about any other questions you may have.
No-Asset vs. Asset bankruptcies
Many Chapter 7 bankruptcy cases don’t involve the forfeiture of any assets. Often, someone who meets the income requirements to file for bankruptcy under Chapter 7 doesn’t own any assets that aren’t covered by one of the many exemptions that the bankruptcy court provides to petitioners. These are known as no-asset Chapter 7 filings.
In some cases, petitioners own additional assets beyond those covered by exemptions, perhaps purchased before their income took a hit or that they inherited. This is considered an asset Chapter 7 filing. In these cases, the bankruptcy trustee has the right to liquidate these assets (i.e., turn them into cash) and distribute the proceeds among your creditors, minus the trustee’s fee.
Sale of assets could reduce priority debts
The sale of your property may sound like something that you’d never want to happen, but there may be scenarios where items you wouldn’t miss could go toward debts that need to be paid. Let’s say you inherited a second car from a relative which isn’t covered by an exemption. While it’s nice to have the car, you don’t need it for your everyday commute. Should the trustee sell the car, any funds from the sale would go first toward your priority debts. These debts include tax debts, student loans, alimony, and other debts which aren’t eliminated in bankruptcy (i.e., ones you’ll continue paying after your bankruptcy case is resolved). Only once those are paid would funds go toward your unsecured debts, which are eliminated after your bankruptcy is closed.
If you are considering filing for bankruptcy and want to speak with a seasoned, knowledgeable, and dedicated attorney about your options, contact the Germantown offices of the Haeger Law Firm for a free consultation at 888-463-3520.