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 New Jersey, as in all states, Chapter 7 of the Federal Bankruptcy Code governs the process of liquidation bankruptcy. When an individual files for Chapter 7 bankruptcy, they are not required to submit a repayment plan as they would in a Chapter 13 bankruptcy. Instead, a bankruptcy trustee is appointed to sell the debtor's nonexempt assets and distribute the proceeds to creditors. The Bankruptcy Code provides a list of exemptions that allow the debtor to retain certain essential property, such as a portion of equity in their home, automobile, personal belongings, and retirement accounts, among others. However, assets that are not covered by these exemptions can be sold by the trustee. Liens and mortgages on the debtor's property may also need to be satisfied. Debtors in New Jersey should be aware that filing for Chapter 7 could result in the loss of property if it is not protected by exemptions. It's important for individuals considering bankruptcy to consult with an attorney to understand how their assets would be affected and to navigate the complexities of the bankruptcy process.