Chapter 7 Bankruptcy: 

     Chapter 7 is known as “straight bankruptcy” or “liquidation.” It requires an individual to give up property which is not “exempt” under the law, so the property can be sold to pay creditors. Generally those who file chapter 7 keep all of their property except property which is very valuable or which is subject to a lien which they cannot avoid or afford to pay.  

  In a bankruptcy case under Chapter 7, you must file a petition asking the court to discharge your debts. The basic idea in a Chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for “exempt” property which the law allows you to keep. In most cases, all of your property will be exempt. But property which is not exempt is sold with the money distributed to creditors.

  If you want to keep property like a home or a car and are behind on a mortgage or car loan payments, a Chapter 7 case probably will not be the right choice for you. That is because chapter 7 bankruptcy does not eliminate the right of the mortgage holders or car loan creditors to take your property to cover your debt.

  If your income is above the median family income in your state, you may have to file a Chapter 13 case (the national median family income for a family of four in 2006 was approximately 65,796). Higher-income consumers must fill out “means test” forms requiring detailed information about their income and expenses. If the forms show, based on standards in the law, that they have a certain amount left over that could be paid to unsecured creditors, the bankruptcy court may decide that they cannot file a Chapter 7 case, unless there are special extenuating circumstances