What is a Liquidation Bankruptcy?

 Posted on December 29, 2023 in Chapter 7 bankruptcy

It is overwhelming to face a continuous debt pile despite your best efforts. Understanding what a liquidation bankruptcy involves can help you evaluate if this path - also called Chapter 7 bankruptcy - is the right fresh start, given your situation. A Texas bankruptcy lawyer can also help you determine if this is the best option for your circumstances.

What is Chapter 7 Bankruptcy?

Chapter 7 refers to the U.S. bankruptcy code section dealing with total liquidation cases. It allows you to legally discharge qualifying debt you cannot repay, providing much-needed relief and letting you move forward less burdened. With Chapter 7, a court-appointed trustee sells your non-exempt assets and distributes proceeds to creditors. Any remaining unpaid debt gets erased.

Who Qualifies to File Chapter 7?

To file Chapter 7, you must pass a two-prong “means test” evaluating your income and expenses. Those making below median state income for their household size who lack enough disposable income to fund a 3-5 year Chapter 13 repayment plan usually qualify. Chapter 7 works best for those overwhelmed by urgent issues like foreclosure, lawsuit judgments, or aggressive collections that require quick protection.

The Chapter 7 Timeline: What Happens?

Once your case is filed, an “automatic stay” immediately halts collections or foreclosures. Expect the following steps:

• The trustee reviews asset documentation
• Meeting of creditors where you testify under oath
• Trustee liquidates available non-exempt assets through sales
• Net proceeds distributed to creditors
• Discharge order eliminates remaining eligible debt
• Case closed

Which Debts Get Discharged?

If eligible, you can discharge:

• Credit card balances
• Medical bills
• Personal loans
• Past utility bills
• Most old tax debts

Debts that remain due include alimony, child support, recent taxes, student loans, and civil lawsuit judgments stemming from gross negligence or intentional harm.

Know the Consequences

The fundamental trade-off is surrendering certain assets in exchange for a fresh slate. This can mean selling essential items like cars, boats, or a second home not classified as exempt property in your state. It may also impact your credit rating for years.

Contact a San Antonio, TX Bankruptcy Lawyer

Liquidation bankruptcy offers a powerful way to resolve crippling debt you cannot address through normal repayment channels. Still, risks exist. Connect with an experienced debt relief attorney before deciding if Chapter 7 is your best path forward. A New Braunfels, TX bankruptcy attorney can help with the process to ensure you take the proper steps. Call Law Offices of Chance M. McGhee at 210-342-3400 for a free consultation.