Chapter 7, entitled Liquidation, contemplates
an orderly, court-supervised procedure by which a trustee takes over the assets of the debtor's estate, reduces them to
cash, and makes distributions to creditors, subject to the debtor's right to retain certain exempt property and the rights
of secured creditors.
Because there is usually little or no nonexempt property in most chapter 7 cases, there
may not be an actual liquidation of the debtor's assets.
These cases are called "no-asset cases."
A creditor holding an unsecured claim will get a distribution from the bankruptcy estate only if the case is an asset case
and the creditor files a proof of claim with the bankruptcy court. In most chapter 7 cases, if the debtor is an individual,
he or she receives a discharge that releases him or her from personal liability for certain dischargeable debts. The debtor
normally receives a discharge just a few months after the petition is filed.
Amendments to the Bankruptcy Code
enacted in to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 require the application of a "means test" to determine whether individual consumer debtors qualify for relief under chapter 7. If such a debtor's income
is in excess of certain thresholds, the debtor may not be eligible for chapter 7 relief.