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Why can a bankrupt person’s property be sold through a judicial sale?

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Oil portrait of Hugo de Groot, also known as Hugo Grotius, by the workshop of Michiel Janszoon van Mierevelt, showing him with a ruffled white collar and dark clothing. — Property law Portrait of Hugo de Groot (Hugo Grotius), oil on panel by the workshop of Michiel Janszoon van Mierevelt, 1631; in the Rijksmuseum, Amsterdam.

A bankrupt person’s property is sold through a judicial sale—a process known as liquidation—primarily to ensure the fair and orderly distribution of assets among creditors.12

The fundamental objective of modern bankruptcy law is to satisfy the claims of creditors who are owed money by the insolvent debtor. By centralizing the administration of the debtor's nonexempt assets under the control of a trustee or assignee, the law prevents individual creditors from seizing property independently, thereby upholding the principle of equal treatment, or par condicio creditorum.21

Historically, this practice evolved from ancient Roman law, where an unpaid creditor could have a debtor’s estate sequestered and sold to satisfy debts. Today, the process serves as a mechanism to:3
* Reintegrate the estate: Laws often allow for the avoidance of fraudulent or preferential transfers made shortly before bankruptcy to ensure all available assets are included in the sale.12
* Provide closure: It allows for the systematic conversion of property into proceeds, which are then distributed according to established legal priorities, such as tax claims or labor debts.2
* Manage insolvency: It provides a structured, supervised environment to resolve financial obligations when a debtor can no longer meet their payments.13