In US bankruptcy law, individuals use Chapter 7 for debt liquidation.
Chapter 7 is called the liquidation chapter because a court-appointed trustee reviews the debtor’s assets, sells nonexempt property when appropriate, and distributes proceeds to creditors according to the Bankruptcy Code’s priorities. Many individual cases are “no-asset” cases because property is exempt, protected by valid liens, or otherwise unavailable for distribution.
An eligible individual may receive a discharge of many personal debts, giving the debtor a legal fresh start. The discharge is not universal: obligations such as certain taxes, child support, alimony, and some education-related debts may survive. Chapter 7 also does not erase a valid lien against property.
Chapter 13 is the main alternative for individuals with regular income who want to repay debts through a court-approved plan, often over three to five years. Chapter 11 generally concerns reorganization, while Chapter 9 is reserved for municipalities. Individuals considering Chapter 7 may also face a means test, intended to identify filings that could be abusive when repayment capacity is available.