Chapter 7 is the liquidation chapter of the Bankruptcy Code. Chapter 7 cases are commonly referred to as “straight bankruptcy” or “liquidation” cases and may be filed by an individual, husband and wife, a corporation, or a partnership. Under chapter 7, a trustee is appointed to collect and sell all property that is not exempt and to use any proceeds to pay creditors. Most Chapter 7 Debtors DO NOT have assets over the exemption amounts that are provided for and their assets will not get taken by the Trustee and sold for liquidation purposes.
In the case of an individual or husband and wife, the debtor is allowed to claim certain property as exempt. Property that is not exempt is taken by the trustee, sold and the money used to pay creditors. In exchange for this, the debtor gets a discharge, which means that the debtor does not have to ever pay back most types of debts. Corporations and partnerships do not receive discharges. Consequently, any individuals legally liable for the partnership’s or corporation’s debts will remain liable. If a person is also liable for a corporation’s debts, individual bankruptcy may be required as well as the corporation or partnership bankruptcy to protect the individual person.