"Chapter 7" is the section of the United States Bankruptcy Code that controls the orderly liquidation of a debtors assets as part of a process to repay creditors. This contrasts with Chapter 11 of the U.S. Bankruptcy Code that provides for the reorganization of the business that has filed for bankruptcy, i.e. the restructuring of its debts and operations so that it can continue in business.
How It's Used
"At the heart of the existing process is a strategic choice between liquidation under Chapter 7 or rehabilitation under Chapter 13. Under Chapter 7, households give up all of their nonessential assets (as determined by the law of the state where they live), but pay nothing out of any future income to clear their debts; those debts are simply erased. Under Chapter 13, households make payments out of future income, but are more likely to retain their homes and automobiles."
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