Chapter 7 bankruptcy 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—and potential debtors should realize that the filing of a petition under Chapter 7 may result in the loss of property.

In Colorado, Chapter 7 bankruptcy is a legal process that allows individuals to discharge their unsecured debts by liquidating their nonexempt assets. When a debtor files for Chapter 7 bankruptcy, a trustee is appointed to oversee the sale of the debtor's nonexempt property and distribute the proceeds to creditors. The Bankruptcy Code, which is federal law, and Colorado state statutes determine which assets are considered exempt, meaning the debtor can keep them. Common exemptions include a portion of the equity in the debtor's home, automobile, personal belongings, and retirement accounts. However, nonexempt assets are sold to pay off creditors. It's important for debtors to understand that filing for Chapter 7 bankruptcy can lead to the loss of property if it is not covered by exemptions. Liens and mortgages may also affect which assets can be sold and how the proceeds are distributed. Debtors in Colorado should consult with an attorney to understand how their assets would be affected by a Chapter 7 bankruptcy filing and to navigate the complexities of the bankruptcy process.