Assets in Chapter 7
When you file a chapter 7 bankruptcy petition, you give consent for the trustee to take possession of your assets and sell them to raise cash to satisfy your debts. If any debts remain unpaid because sufficient assets aren't available, these balances are discharged, and you're relieved of responsibility for paying them. Assets that a trustee can be liquidate include your personal property, pets and animals, real estate, some retirement benefits, life insurance, inheritances, your interest in a business and intellectual property rights such as patents. If you have a pending lawsuit, the trustee is entitled to the proceeds in many cases.
Assets do not include pension benefits or proceeds from a lawsuit that represent compensation for libel, pain or suffering. Additionally, both federal and state laws provide for the use of exemptions -- dollar limits in certain property that you can reclaim from your bankruptcy estate, which is the pool of assets that your trustee can sell. Common exemptions cover equity in your home, your automobile and personal property.
Assets in Chapter 13
Your assets are not at risk for liquidation if you file for chapter 13 bankruptcy. In this type of case, your creditors are paid from your income that is left over each month after you pay your necessary living expenses.