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 New Jersey, as in other states, Chapter 7 bankruptcy is a legal process designed to help individuals and businesses eliminate or repay their debts under the protection of the bankruptcy court. Chapter 7 bankruptcy is often referred to as liquidation bankruptcy because it involves the sale of the debtor's nonexempt assets by a bankruptcy trustee. The proceeds from the sale are then distributed to creditors. It's important to note that Chapter 7 does not involve a repayment plan like Chapter 13 bankruptcy does. Instead, once the nonexempt assets are liquidated and creditors are paid to the extent possible, remaining unsecured debts are typically discharged. Debtors are allowed to keep exempt property, which may include items like a primary residence, car, and personal belongings, depending on New Jersey's specific exemption laws. However, if the debtor has property that is not exempt, it may be sold by the trustee. Liens and secured debts, such as mortgages, may also affect what property can be retained. Filing for Chapter 7 bankruptcy can have significant consequences, including the loss of property, and it may impact the debtor's credit score. Individuals considering bankruptcy should consult with an attorney to understand the full implications and to navigate the complex legal process.