Are liquidation and bankruptcy the same?
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Are liquidation and bankruptcy the same?

| Mar 12, 2020 | blog |

Some people fear bankruptcy because they believe it means they will have to sell everything they own to try to pay off their debts. Aside from the fact that bankruptcy exemptions prevent people from losing everything in bankruptcy, this belief is not true. Not all forms of bankruptcy result in you selling off your assets, which is also known as liquidation. 

As explained by Chron, liquidation refers to the practice of taking assets and selling them to convert them to cash. Businesses that are closing often conduct liquidation sales to sell off their inventory before shutting down. While liquidations can function as a part of bankruptcy, not all bankruptcies actually involve liquidation. 

When bankruptcy does not involve liquidation 

If you are contemplating filing for bankruptcy, the form of bankruptcy you choose will determine whether you undergo liquidation. Under Chapter 13 bankruptcy, you would not liquidate your assets. Instead, the bankruptcy would shield you from creditors while you conduct a repayment plan to pay off your debts. The court may also discharge some debt under this plan. 

When bankruptcy does involve liquidation 

However, some people cannot muster the financial resources to pay off a significant amount of debt even under a period of protection from creditors. Individuals in these cases often file for Chapter 7. Once a court approves the filing, the bankruptcy trustee will sell off assets not exempted from liquidation to pay off creditors. Exempt assets usually involve clothing, appliances, a home, tools, and jewelry and vehicles of a certain value. 

The choice to file for either Chapter 7 or Chapter 13 may not be easy. It will depend on many different factors, such as the financial situation of the person seeking relief from debt. Nonetheless, it remains a fact that bankruptcy does not require a person to lose everything he or she owns.