In Chapter 7 bankruptcy cases, the assets that the individual or business bankruptcy filer owns becomes property of the bankruptcy estate when the bankruptcy case is filed. In Chapter 7 bankruptcy, a trustee is appointed to liquidate or sell non-exempt assets and distribute those funds to creditors. The automatic stay stops collection efforts against those assets and affords the trustee an opportunity to explore the value of the bankruptcy estate assets that would have otherwise been foreclosed, repossessed or garnished.
This is particularly important for a Chapter 7 business bankruptcy when the business owes priority debts such as taxes. Without filing bankruptcy, a general non-priority creditor might have taken possession of the small business assets and sold them to payoff what the creditor is owed. In Chapter 7 small business bankruptcy, the trustee will sell those assets and pay the creditors in the order of their priority. A Chapter 7 attorney familiar with the automatic stay and liquidation process will be able to help you assess whether the time is right to get your case filed and prevent your creditors from seizing assets they would otherwise not be entitled to.