Bankruptcy Liquidation

How bankruptcy liquidation works in Chapter 7 & 11

Most often, bankruptcy liquidation auctions indicate substantial assets were seized by a trustee. The cost of liquidation is substantial, and prevents ordinary and routine non-exempt asset sales in most consumer Chapter 7 cases. For instance, few, if any creditors actually list a strict 100% of assets owned in their Schedule H exemption form. In practice, Chapter 7 trustees routinely abandoned all non-exempt assets unless and until the value of potential assets that are subject to seizure rises above the cost of liquidation by a margin that results in a substantial recovery that may be distributed to creditors.

The cost of the liquidation process

The identification of property subject to seizure is only the beginning of the process. Thereafter, trustees, who are commonly local attorneys serving on behalf of the U.S. Trustee, must comply with an extensive legal process for notice, seizure, appraisal, auction or sale, distribution of proceeds, and reporting results to the court. Because of the time consuming nature of this process (billed at an attorney's hourly rate), total non-exempt assets of nominal value cannot be liquidated for a net distribution after deducting expenses. The cost of liquidation quickly rises above $500 in the simplest cases, and predictably, trustees abandon even cash accounts containg less than than the cost of administration rather than initiating the liquidation process.