Definition

• Chapter 7 bankruptcy discharges all debts through a court process. However, during court proceedings creditors may recover some of the monies owed to them by liquidating certain of your assets. At the end of the process -- called the bankruptcy discharge -- all debts are erased and creditors or third parties cannot collect any debts incurred prior to the proceedings. The biggest difference between Chapter 7 and the other common bankruptcy filings, Chapter 11 and 13, is debt erasure. Chapters 11 and 13 re-organize debt according to a repayment schedule, but only Chapter 7 erases all debt.
  
  

Process

• Chapter 7 filers must first be able to pass a means test. Individual filers must earn less than the median income in their state to be eligible; otherwise they are directed to a Chapter 13 filing where they are required to develop a repayment plan. The U.S. Census Bureau publishes statistics regarding median state incomes for respective states. Applicants who pass the means test may file Chapter 7 bankruptcy with a bankruptcy court where the individual lives. Corporations and partnerships may also file for bankruptcy protection using the same court. As of 2010, the courts charge a $245 filing fee along with a $39 miscellaneous administrative fee and $15 trustee fee, totaling $299. Individuals may request an installment payment schedule.
  
  

Documents

• Filers must present detailed information about their debts and income. This includes a list of all creditors and associated claims. In addition, the debtor must produce documents verifying income, its source and frequency, as well as a list of monthly expenses for housing, food, taxes and other common expenses. Finally, the debtor must list all property, from housing to automobiles to furniture. The information is given to a impartial court trustee.
  
  

Property Liquidation

• The court may order that certain types of property be liquidated. This means the property will be sold and the proceeds used to partially satisfy monies owed to creditors. Certain properties may be considered exempt. Exempt property varies by state, but sometimes includes clothing and personal effects and partial exemptions for higher cost property like vehicles and homes. Filers must check the regulations for their individual states. The court trustee administers the liquidation and subsequently meets with the debtor and creditors where potential consequences and challenges are discussed. Bankruptcy judges are not allowed in these meetings to avoid any prejudice in court.
  
  

Final Disposition

• Unless creditors challenge an asset's exempt status or other procedure, the bankruptcy judge will discharge the case, erasing all debts and rights of creditors to collect. According to the federal government, individual filers receive a discharge in 99 percent of cases. The filing remains on the individual's credit report for 10 years, and filers are prohibited from filing another Chapter 7 bankruptcy for eight years.