Liquidation

• Liquidation means all of the debtor's nonexempt property is sold and the proceeds are used to pay of as many creditors as possible. The rest of the debtor's debts are extinguished (with some limited exceptions, such as student loans).
  
  

Exempt Property

• Some property is not sold in a Chapter 7 liquidation. For example, a modest family home will not be sold, and generally neither will cars, clothing, household items and other personal property.
  
  

Discharged Debts

• The big advantage of filing Chapter 7 bankruptcy is that it erases, or "discharges," nearly all of your debts, including credit cards, auto loans, deficient judgments and civil judgments. If a debt is discharged, then you no longer have a legal obligation to pay the debt.
  
  

Nondischargeable Debts

• Some debts cannot be discharged in bankruptcy. Among the most important nondischargeable debts are student loans, domestic support obligations (such as alimony or child support) and tax debts.
  
  

Automatic Stay

• As soon as you file your petition for bankruptcy, a legal "automatic stay" is placed on all of your creditors. This means your creditors must immediately stop all debt collection efforts, including phone calls, repossessions and foreclosures.
  
  

Credit Counseling

• Before you can file for Chapter 7 bankruptcy, you have to participate in credit counseling. You will meet with a credit counseling agency to discuss your financial options.