Why the Rules of Chapter 7 Filings are Focused on the Liquidation of Assets

Bankruptcy is not necessarily intended for a petitioner to walk away from their debts scot free. Some attempt is supposed to be made to pay something to the creditors before all balances are wiped out. This isn't always the case, especially when there are no assets for distribution. Ultimately, you're telling the court that you have little to nothing left over every month and need some relief from your creditors under chapter 7 rules.

Defining the Word Liquidation in Chapter 7

Anything that you own outright and has value can be sold by the trustee. For example, you own a car that has been paid off and is not a primary vehicle for you or anyone in the household. That car can be taken and sold, with the proceeds distributed to your creditors. It may feel unfair, but that is how the chapter 7 rules work. The only way to hang onto an item is to sell or gift it to someone and wait a year and one day to file. You may not have a year to wait, especially if creditors are taking you to court and obtaining wage garnishments.

If you'd rather not lose your assets, you may want to consider chapter 13 instead. In chapter 13, you'll have to make payments on your debt for 36-60 month, but you don't have to sell off assets. At the end of that time, any remaining balances will be erased with discharge.

No Asset Chapter 7

In the situation where you own nothing of any substantial value, you can exempt everything under your state laws. This creates a no-asset bankruptcy, which is entirely permissible under chapter 7 rules. You may find that you have to back up valuations of certain items to avoid questioning by the trustee. This can be done through a little research on the Internet for comparable items or by going to car dealers or auto-wreckers for an older vehicle. A no-asset case will allow you to keep what's valuable to yourself without the worry of losing it to the courts.

Talking Over Your Uncertainties With a Lawyer

Make an appointment for a consultation with an experienced bankruptcy lawyer. Do this before you go any further into the process. Filing a petition should be done with someone who's familiar with the chapter 7 rules and can guide you away from any pitfalls. They're also going to know how exemptions work in your state and will be best able to advise you on what to expect to happen to any non-exempt assets.