Liquidation is another name for what is commonly called Chapter 7 bankruptcy. This is one of the most common bankruptcy filings, and it is what you would imagine bankruptcy is. This type of bankruptcy will liquidate all of your assets and use them to pay off as much of your debts as is possible. Once those assets have been used, any remaining debts will be discharged, meaning that you will no longer be in debt.
However, there are a few things that you should expect, and there are definitely some exemptions to keep in mind. First of all, not all of your assets will be liquidated, and not all of your debts can be discharged. For instance, you will be able to keep a small amount of your assets when it comes to clothing, a vehicle and your home – essentially, enough so that you should be able to get back on your feet after the bankruptcy.
You will also be able to exempt some of your personal items – for instance, family photographs are definitely exempt, as are some of your other belongings that mostly have personal value to yourself. Once you file for Chapter 7 bankruptcy, you will have to list all of your assets, including your exempted assets. Then, all of your non-exempt assets will be sold, or “liquidated” in order to collect funds that will be used to pay off your debts.
At this point, your debts will be paid off using the money that was collected through selling your assets. If all of your debts are dischargeable, then any remaining debts will be discharged. (Your debts will be paid in order of priority, so high priority debts will be paid, and low priority debts stand a better chance of being discharged).
It is important to keep in mind that not all debts are dischargeable, however. Therefore, if you are not careful, and if your debts are not dischargeable, it is possible to go through Chapter 7 bankruptcy and still have some debts remaining. Generally these debts include things like child support, taxes, or driving fines. Therefore, if most of your debt is similar to these types of debt, filing Chapter 7 bankruptcy may not help you.