Which type of bankruptcy requires the individual to liquidate their assets?

The type of bankruptcy that requires an individual to liquidate their assets is Chapter 7 bankruptcy. This form of bankruptcy is designed for individuals and businesses that cannot afford to pay back their debts. When someone files for Chapter 7, a trustee is appointed to oversee the case and is responsible for selling the non-exempt assets of the debtor. The proceeds from these asset sales are used to pay off creditors. Individuals are allowed to keep certain exempt assets, which can vary by state, but generally, all non-exempt assets will be sold in order to pay off debts.

This liquidation process distinguishes Chapter 7 from other types of bankruptcy, such as Chapter 11, which is mainly for reorganizing a business’s debts while keeping it operational, and Chapter 13, which allows individuals to create a repayment plan to pay back debts over time, without the requirement to liquidate assets. Chapter 12 is specifically tailored for family farmers and fishermen to reorganize their debts and also does not typically involve the liquidation of assets.