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(Video) What Does It Mean To Liquidate Assets In A Bankruptcy?

Written by Wesley Scott | July 17, 2018 at 3:15 PM

The language of bankruptcy attorneys can seem like Greek to the non-attorney. What does it mean for a Chapter 7 trustee to “liquidate” assets? When would the trustee do such a thing anyway? When we say, a Chapter 7 trustee will “liquidate” assets, we mean the Chapter 7 trustee will sell the assets and reduce the physical assets to money. You can’t take physical assets and distribute those assets to creditors. Instead, you sell the assets, reduce the assets to money, and disburse those proceeds to creditors pro rata and based on a set of priorities.



A Chapter 7 trustee “liquidates” assets when there are non-exempt assets owned by a Chapter 7 debtor. For example, debtor may have listed a condo in Florida but not exempted the condo in their schedules. The condo is a non-exempt asset trustee must “liquidate” and reduce to money. Trustee sells the condo and the net proceeds are disbursed to creditors who file a proof of claim on time.

When the Chapter 7 trustee sells non-exempt assets many times they offer the non-exempt asset to debtor first. If debtor is not interested in purchasing the non-exempt asset, trustee sells the asset on the open market and files a notice of sale with the bankruptcy court. If there are no objections to the sale, the court issues an order approving the sale of the non-exempt asset.  Only creditors who file a proof of claim on time share in the proceeds. Untimely filed creditors get nothing.

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