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 Rhode Island, as in other states, Chapter 7 of the Bankruptcy Code is designed to provide relief to individuals and businesses overwhelmed with debt by liquidating their nonexempt assets to pay creditors. When a debtor files for Chapter 7 bankruptcy, they are not required to submit a repayment plan as they would under Chapter 13. Instead, a bankruptcy trustee is appointed to oversee the sale of the debtor's nonexempt property and distribute the proceeds to the creditors in line with the Bankruptcy Code's rules. Certain assets may be protected by liens or mortgages, meaning they are pledged to secured creditors. The Bankruptcy Code also allows debtors to retain some exempt property, which can include basic necessities for living and working. However, filing for Chapter 7 bankruptcy can lead to the loss of nonexempt property. It's important for individuals considering this form of bankruptcy to consult with an attorney to understand the specific exemptions and legal implications in Rhode Island.