Chapter 7 of the Bankruptcy Code provides for liquidation—the sale of the debtor’s nonexempt property and the distribution of the proceeds to creditors. A chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in chapter 13.

Instead, the bankruptcy trustee gathers and sells the debtor's nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code. Part of the debtor's property may be subject to liens and mortgages that pledge the property to other creditors.

In addition, the Bankruptcy Code will allow the debtor to keep certain "exempt" property; but a trustee will liquidate the debtor's remaining assets. Accordingly, potential debtors should realize that the filing of a petition under chapter 7 may result in the loss of property.

In Alabama, Chapter 7 bankruptcy is a legal process that allows individuals to discharge their debts by liquidating assets that are not protected by exemption laws. When a debtor files for Chapter 7, they are not required to submit a repayment plan as they would in a Chapter 13 bankruptcy. Instead, a court-appointed trustee sells the debtor's nonexempt property to pay off creditors. The Bankruptcy Code and Alabama state law determine which assets are considered exempt, meaning the debtor can keep them. Common exemptions include a portion of equity in a home, personal property, and retirement accounts, among others. However, if the debtor has property with liens or mortgages, those assets may still be subject to claims by secured creditors. It's important for individuals considering Chapter 7 bankruptcy to understand that while it can provide relief from many types of debt, it may also result in the loss of some of their property.