Chapter 7 bankruptcy is the most basic type of bankruptcy under American law. This is known as “liquidation” bankruptcy and is an option for both businesses and individuals. If granted, the applicant is required to pay what assets he or she does have (except exempt assets) to creditors, and the remainder of dischargeable debts are eliminated. Bankruptcy may not be available to those whose incomes are above certain thresholds, which also considers the amount of the applicant’s debt.
Chapter 7 applicants must disclose all their assets. While bankruptcy is always a federal proceeding, state law determines what property is exempt and can be kept by the applicant, and state rules vary greatly. Businesses that complete a Chapter 7 Bankruptcy almost always cease operating unless they are bought out.
While most debts are dischargeable in bankruptcy, the Bankruptcy Code lists several types of debts that cannot be discharged. These include many types of taxes, student loans, child support or alimony, intentional or drunk driving tort damages and criminal restitution or fines.