Chapter 7 Bankruptcy Basics: Why & When is Property Liquidated?

Chapter 7 bankruptcy is the most common type of bankruptcy. In a Chapter 7 bankruptcy, the debtor's nonexempt assets are liquidated and the proceeds are distributed to creditors. The debtor is then discharged from his or her obligations to repay the debts.

There are several reasons why a debtor may choose to file for Chapter 7 bankruptcy. First, the debtor may be unable to repay his or her debts. Second, the debtor may want to eliminate his or her debt burden so that he or she can focus on rebuilding his or her credit. Third, the debtor may want to protect his or her assets from creditors.

When a debtor files for Chapter 7 bankruptcy, his or her property is liquidated and the proceeds are used to pay off creditors. The trustee will sell the debtor's nonexempt assets and use the proceeds to pay creditors.

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