Chapter 7 Bankruptcy

A chapter 7 bankruptcy is also known as a liquidation program. In a Chapter 7 bankruptcy, a court-appointed trustee collects the assets of the debtor’s estate, appraises their cash value, converts them to cash for eventual repayment, and makes all necessary distributions to the debtor's creditors. This is all done within the debtor’s right to retain certain exempt property.

Typically, there is little or no nonexempt property in a chapter 7 bankruptcy. This varies from state to state. In that case a liquidation of the debtor’s assets may not actually occur. If that is the case, it is referred to as a no-asset bankruptcy. It is imperative to understand that a creditor who is attempting to collect on an unsecured debt will only get a distribution from the bankruptcy estate if the case is an asset bankruptcy, and the creditor can provide proof of their claim to the bankruptcy court.

In the majority of chapter 7 bankruptcies the debtor is grated a discharge which releases them of personal liability for their dischargeable debts. The entire process normally takes a few months from the time the bankruptcy petition is filed with the courts.