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 Hawaii, Chapter 7 bankruptcy is governed by both federal law and state-specific statutes. Under Chapter 7, individuals or businesses can discharge their debts by liquidating nonexempt assets, which are then distributed to creditors. The process does not require a repayment plan as in Chapter 13 bankruptcy. A bankruptcy trustee is appointed to oversee the sale of the debtor's nonexempt property and manage the distribution to creditors. Hawaii law provides a list of exemptions that allow debtors to retain certain essential property, such as a portion of home equity, vehicle equity, personal belongings, and retirement accounts, among others. These exemptions are designed to protect debtors from losing everything and to give them a fresh start. However, debtors may still lose some of their property if it is not covered by exemptions. Liens and secured debts, such as mortgages, may also affect which assets can be liquidated. It's important for individuals considering Chapter 7 bankruptcy in Hawaii to consult with an attorney to understand how state and federal laws will impact their specific situation and to ensure they navigate the process correctly.