When you hear phrases such as “liquidation” or “liquidating assets,” you might think that they only apply to businesses. After all, companies that are closing usually have liquidation sales to get rid of any remaining inventory or stock, so that they can pay their debts and move on. Liquidation isn’t limited to businesses, though. It’s possible for individuals to liquidate certain assets, or items they own, when they need to pay off debt or if they are going through a big life change. There are a few instances in life when you might have the option of liquidating assets.
Sometimes called a liquidation bankruptcy, the big difference between a Chapter 7 and a Chapter 13 bankruptcy is how your debts are paid off. If you file for Chapter 13 bankruptcy, you are subject to a repayment plan so that you pay your creditors some amount of your debt. Under a Chapter 7 bankruptcy, certain assets are liquidated, or sold, and your bankruptcy trustee uses the money from the sale to pay your creditors.
It’s worth noting that there are many exemptions from liquidation during a Chapter 7 bankruptcy, so it is possible for you to go through the process without liquidating any assets. Although the laws regarding exemptions can differ depending on your state, in general, you’re allowed to exempt equity in your home, retirement accounts, and up to a certain amount for personal property. A bankruptcy attorney can give you the most up to date information on this process.
Liquidating assets might be part of the process of dividing up joint property when you are going through a divorce. For example, if you own a home with your spouse, the best option for both of you might be to sell it, use the proceeds to pay off the mortgage, then split any remaining money equally. The same is true for any other jointly owned property and accounts.
If both you and your spouse are responsible for a loan on an item, deciding to sell off the item and wipe out the loan is often a safer route to take. Otherwise, you might agree to take the house while your spouse takes the car, but keep both of your names on the loan. If your spouse stops making payments on the car loan, the creditor can come after you and your credit can be negatively affected, even though your spouse is responsible for the car.
You don’t need to file for bankruptcy or be going through a divorce to liquidate your assets. Selling valuable items can also be an option if you have a substantial amount of debt. For example, if you are struggling to make payments on your debts each month, you might try to sell items and use the proceeds from the sale to pay off your debt or to at least make a dent in the debt.
Liquidating assets isn’t always the best option, but is one solution. Whether you are considering bankruptcy, are coping with a divorce, or simply want to reduce your debt burden, the team at CESI can help you decide what course of action is best for you. We can help you make a plan to pay off debt or decide if bankruptcy is the right step. Contact us today for more information.
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