Which chapter of bankruptcy involves liquidation of assets?

Chapter 7 bankruptcy is specifically designed for liquidation of assets. In this process, a debtor’s non-exempt assets are sold off to repay creditors. The goal of Chapter 7 is to eliminate most unsecured debts, providing the debtor with a fresh start financially.

During the Chapter 7 bankruptcy process, a court-appointed trustee evaluates the debtor’s assets, determines what can be sold, and oversees the sale of those assets to ensure the proceeds go to settling debts. Certain assets may be exempt from liquidation depending on state and federal laws, allowing individuals a chance to retain essential property.

In contrast, other chapters like Chapter 11, Chapter 12, and Chapter 13 involve different strategies mainly focused on reorganization, repayment plans, or restructuring debts, rather than directly liquidating assets. For instance, Chapter 11 allows for reorganization of debts while keeping control of assets, and Chapter 13 establishes a repayment plan over several years without liquidation. This distinction is crucial for understanding the purposes and processes of different bankruptcy filings.