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 York, Chapter 7 bankruptcy is governed by both federal law and state-specific exemptions. Under Chapter 7, individuals or businesses can eliminate most of their unsecured debts by liquidating their nonexempt assets through a bankruptcy trustee, who then distributes the proceeds to creditors. New York allows debtors to choose between federal exemption statutes and New York's own set of exemptions to protect certain assets from liquidation. These exemptions may include equity in a home, personal property, and retirement accounts, among others. It's important to note that some debts, such as student loans, child support, and certain taxes, typically cannot be discharged in a Chapter 7 bankruptcy. Additionally, secured debts like mortgages or car loans may lead to the foreclosure or repossession of the property if the debtor cannot make payments. Debtors considering Chapter 7 should be aware that it involves a thorough examination of their finances, and not all assets may be protected from sale.