Even fiscally responsible persons could suffer from excessive debt. Everything from job losses to unexpected, severe illnesses may leave a resident with bills they cannot pay. Some Virginia consumers may find ways to address their financial situation, while others will look to the bankruptcy courts for protection. Some may have concerns about the requirements for liquidating assets since they may need clarification about what liquidation entails.
Bankruptcy and liquidation
The main difference between Chapter 7 and Chapter 13 bankruptcy centers on liquidation. With Chapter 13, filers work out a payment plan to deal with creditors. However, Chapter 7 involves liquidating specific assets to pay some obligations.
Fundamentally, liquidation involves converting assets to cash. Selling savings bonds or a vehicle represents two ways someone could turn assets or property into cash. Liquidation could be a catch-all term for different approaches and reasons for the same action. For example, a retail store may sell items two-for-one to liquidate overstock. Bankruptcy involves the forced liquidation of non-exempt assets to pay creditors.
Chapter 7 liquidation
When someone’s financial situation makes completing a Chapter 13 payment plan impossible, Chapter 7 may be the alternate option. Passing a means test that examines debt and income establishes eligibility for Chapter 7. The court reviews a declaration of assets and property that face liquidation to pay some debt.
It becomes essential to point out that some properties and assets would be exempt from liquidation. Specific professional tools and pensions might be exempt, along with other things the debtor requires to survive financially. The court often exempts a primary car up to a set valuation, although a second car might be subject to liquidation.
Another essential element of Chapter 7 bankruptcy is debt discharge. Not all obligations face a payoff, as debtors become free of responsibilities to pay them. Discharges reflect helpful relief available through bankruptcy proceedings.