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 Vermont, as in all states, Chapter 7 of the Bankruptcy Code is a federal law that allows individuals and businesses to discharge their debts by liquidating assets. When a debtor 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 property to pay off creditors. The Bankruptcy Code does provide for certain exemptions, allowing the debtor to retain some property deemed necessary for a basic standard of living, such as a portion of home equity, vehicle equity, household goods, and clothing. However, nonexempt assets will be sold, which can include secondary properties, expensive musical instruments (unless the debtor is a professional musician), and family heirlooms. It's important for debtors in Vermont to understand that filing for Chapter 7 bankruptcy could result in the loss of some of their property, and they should consult with an attorney to discuss the implications and identify which of their assets may be at risk.