Chapter 7 Bankruptcy is the most common form of bankruptcy in the United States. It dictates the process of liquidation under the bankruptcy laws of the United States.
If a troubled business is in debt and unable to pay that debt, it may file for bankruptcy in a federal court under Chapter 7. A Chapter 7 filing means that the business stops operations unless it is continued by the Chapter 7 Trustee. The Trustee sells all the assets of the business and distributes the proceeds to the creditors.
Individuals can also file for bankruptcy in a federal court under Chapter. During this time, the individual is allowed to keep certain exempt property. Some liens, such as real estate mortgages and car loans, will survive. The value of property which can be claimed as exempt varies from by state. Other assets, if you have any, are sold (liquidated) by the interim trustee to repay creditors.
Many types of unsecured debt are legally discharged by the bankruptcy proceding, but there are many types of debt that are not. These may include child support, most taxes, most student loans, and fines and restitution imposed by a court for any crimes committed by the debtor.