Chapter 7 bankruptcy, or “liquidation bankruptcy,” is a proceeding under federal law in which individuals or businesses (or “debtors”) overwhelmed by debt can eliminate most or all of their unsecured debts. Unsecured debts are those that are not backed by collateral, meaning that there is no specific asset that the creditor can take if the debtor does not repay. Common unsecured debts include credit card balances and medical expenses.

In this process, the debtor must pay a filing fee and submit a report of their non-exempt property (if any exists) over to a court-appointed trustee who may sell (or “liquidate”) their assets to repay creditors. Non-exempt assets can include, but are not limited to, homes, cars, or personal belongings. Once this process is completed and the debtor is deemed eligible, the debtor receives what is called a Chapter 7 discharge. This discharge releases them from personal liability for most remaining debts if they obey the orders and rules of the bankruptcy court.