Chapter 7 bankruptcy can serve as a meaningful debt relief opportunity for those facing financial hardship. In a Chapter 7 bankruptcy filing, an individual can go from petitioning the courts to discharging their debts in as little as a few months.
When compared with the three to five years required to complete a Chapter 13 repayment plan, Chapter 7 bankruptcy is certainly the more expedient option. However, there is a trade-off for the efficiency of Chapter 7 proceedings. Filers sometimes have to give up some of their assets. People refer to Chapter 7 bankruptcy as liquidation bankruptcy. It may be necessary for the filer to use some of their assets to repay their creditors before discharging their debts.
Who makes decisions about asset liquidation in a Chapter 7 filing?
The court-appointed trustee oversees liquidation
A Chapter 7 bankruptcy requires not just a petition submitted to the courts but also an inventory of personal assets. Filers have to report their personal resources to the courts. They also have to indicate what exemptions they want to use. Federal rules establish certain bankruptcy exemptions, and individual states have their own rules as well. In both New Jersey and Pennsylvania, filers have the option of choosing which set of exemptions to utilize.
They can use their selected set of exemptions to protect home equity, retirement savings and other crucial assets. If they have property that they cannot protect with exemptions, then those resources may be vulnerable to liquidation. The trustee appointed by the courts to oversee the Chapter 7 bankruptcy process determines whether liquidation is necessary based on exemptions and property disclosures. The trustee is also the party tasked with managing the liquidation of assets and the use of the funds generated to compensate creditors.
Thankfully, many people filing for Chapter 7 bankruptcy can protect all of their resources from liquidation. The loss of assets is only necessary in a minority of personal Chapter 7 bankruptcy filings. People who have legal support as they prepare for and proceed through a Chapter 7 bankruptcy are in the best possible circumstances to protect their resources. Reviewing assets and financial obligations with a skilled legal team can help those contemplating Chapter 7 bankruptcy plan the best path forward accordingly.
