When debts start to outweigh assets or become more than a business or individual can afford to repay, it may be necessary to liquidate assets in order to remain financially stable.Liquidation of assets refers to selling off property in order to raise cash.(To ensure there isn’t any confusion about the sale, all bills of sale should clearly state “as-is, where-is.”) If your business owes creditors, they will have first claim on any proceeds you receive from a liquidation auction.While no one enjoys paying creditors, it must be done.The three major classes are: As cash is generated from the liquidation sale, creditors are paid in that order.
If you've found yourself overextended with your credit, you may be tempted to liquidate your long-term savings, such as cash values on life insurance policies and your 401(k) or IRA accounts, to pay off debt.And then you might be able to pay off only "It really depends on the type of debt and if it will free up some cash each month," says Ryan Michler, registered representative for Mc Partland Group Financial Services in St. "Your goal is just not to eliminate debt, but to get cash flow once again."For example, Michler says, if you are liquidating assets to put toward your home loan, but not paying it off, it will not free up extra cash since your payment amount doesn't change and will do nothing to improve your current financial situation."However, if it is an open line of credit or a revolving account and you're liquidating ,000 to pay off a significant portion, say ,000 in debt, then you are freeing cash and you can begin reducing the rest of the debt or saving again," he says.Michler adds that strapped consumers should also consider these factors when deciding whether to liquidate assets to pay off debt: George Rapp hadn't had a raise in at least three years when his employer was bought out in 2008.Medical bills quickly ate up the maximum on their health insurance, and there were child care expenses for their two older children while the Rapps stood vigil at the hospital."The incidental expenses, such as eating out two or three times a day, made for a really expensive spring and summer," says Rapp.After the buyout, Rapp, a manager in the technology industry in Columbus, Ohio, was asked to take a 10 percent pay cut, along with his co-workers."That in itself was survivable," says Rapp.