Chapter 7 bankruptcy is a type of bankruptcy that allows individuals or businesses to discharge their debts and obtain a fresh start. It is also known as “liquidation” bankruptcy because it involves the sale of the debtor’s non-exempt assets to pay off creditors.

To file for Chapter 7 bankruptcy, the debtor must first pass the “means test,” a calculation to determine if their income is below a certain threshold. If the debtor’s income exceeds the point, they may be required to file for Chapter 13 bankruptcy instead.

Once the debtor has filed for Chapter 7 bankruptcy, a trustee will be appointed to oversee the case. The trustee will collect and sell the debtor’s non-exempt assets and distribute the proceeds to creditors. Certain assets, such as a primary residence, may be exempt from liquidation.

After the trustee has distributed the proceeds to creditors, most remaining debts will be discharged. However, some debts, such as student loans and taxes, may not be dischargeable.

It’s important to note that Chapter 7 bankruptcy will negatively affect the debtor’s credit score and may make it difficult to obtain credit in the future. Additionally, not all types of debts are dischargeable in Chapter 7, so it’s essential to consult with a bankruptcy attorney to determine if this is the right option for you.