Liquidating illiquid collateral

An asset's liquidity may change over time, depending on outside market influences.

This change in price is especially true for collectibles, as an item's popularity in the consumer market may fluctuate dramatically, leading to highly volatile pricing.

It is an event that usually occurs when a company is insolvent, meaning it cannot pay its obligations when they are due. Not all bankruptcies involve liquidation; Chapter 11, for example, involves rehabilitating the bankrupt company and restructuring its debts.

In such cases, investors in preferred stock have priority over holders of common stock.Additionally, precious metals, such as gold and silver, are often fairly liquid.Trading after normal business hours can also result in illiquidity because many market participants are not active in the market at those times.Either value assumes that the sale is consummated by a seller who is compelled to sell and assumes an exposure period which is less than market normal.Liquidation in finance and economics is the process of bringing a business to an end and distributing its assets to claimants. Solvent companies may also file for Chapter 7, but this is uncommon.

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