Liquidation refers to the process of valuing a collection of assets that belong to a debtor. In most cases, liquidated items are used to detract from outstanding debts during bankruptcy proceedings.

How Do I Know What Property Will Be Liquidated?

Items that a debtor is allowed to keep are called exemptions and are not liquidated. Exemptions are defined by statute and vary from state to state. Many states allow you to select from state or federal bankruptcy exemptions; some states offer no exemptions.

Where Else Can Liquidation Be Used?

Liquidation can be used by corporations before or after dissolution. Liquidation can be mandatory or voluntary. A liquidated corporation normally uses the money to given to stockholders who have stakes in the business. In these kinds of cases the liquidation process is treated as a sale or exchange of stock and treated as a capital gain or loss for income taxes.

Is Liquidation Required If a Company Owes Debtors?

Liquidation can be mandatory or voluntary. Voluntary liquidation is also called shareholder’s liquidation and is triggered when the members of the company, typically the shareholders, vote to pass a resolution for liquidation. Mandatory liquidation, or creditor’s liquidation, is triggered by a court order. A court with appropriate jurisdiction, or power over the case, can issue the order for liquidation if one of these parties requests such an order:

  • Any creditor with appropriate standing
  • Contributors
  • Secretary of State or an equivalent office
  • A court officer in charge of the bankruptcy
  • The company itself

It is possible for a company to ask for a mandatory liquidation order while at the same time performing a voluntary liquidation. Such a liquidation order could be given if a party within the company is delaying or attempting to halt the voluntary liquidation already begun.

Do I Need A Lawyer For Liquidation?

A lawyer is not required during the liquidation process but it’s usually a good idea. An experienced Bankruptcy Lawyer can help you negotiate the terms of your bankruptcy and liquidation of certain items.