Chapter 7 bankruptcy is sometimes called "liquidation" bankruptcy -- it cancels your debts, but you might have to let the bankruptcy court liquidate (sell) some of your property for the benefit of your creditors.

The whole Chapter 7 bankruptcy process takes about four to six months, costs $299 in filing and administrative fees, and commonly requires only one trip to the courthouse.

You must also complete credit counseling and a financial management course with an agency approved by the United States Trustee. This usually costs roughly $50 to complete each course.

You won't be able to use Chapter 7 if you already received a bankruptcy discharge in the last six to eight years (depending which type of bankruptcy you filed) or if, based on your income, expenses, and debt burden, you could feasibly complete a Chapter 13 repayment plan.

To file for bankruptcy, you and your attorney prepare a petition and a number of other forms and file them with the bankruptcy court in your area. Basically, the forms ask you to describe:

• your property
• your current income and monthly living expenses
• your debts
• property you claim the law allows you to keep through the bankruptcy process (called "exempt property") -- most states let you keep some equity in your home, clothing, household furnishings, Social Security payments you haven't spent, and other necessities such as a car and the tools of your trade.
• property you owned and money you spent during the previous two years, and
• property you sold or gave away during the previous two years.

Filing for bankruptcy puts into effect an "Order for Relief" -- known informally as the "automatic stay." The automatic stay immediately stops most creditors from trying to collect what you owe them. So, at least temporarily, creditors cannot legally grab ("garnish") your wages, empty your bank account, go after your car, house, or other property, or cut off your utility service or welfare benefits.

The court exercises its control through a court-appointed person called a "bankruptcy trustee." The trustee's primary duty is to see that your creditors are paid as much as possible on what you owe them. And the more assets the trustee recovers for creditors, the more the trustee is paid.

The trustee will examine your papers to make sure they are complete and to look for nonexempt property to sell for the benefit of creditors. The trustee will also look at your financial transactions during the previous year to see if any can be undone to free up assets to distribute to your creditors. In most Chapter 7 cases, the trustee finds nothing of value to sell.

A week or two after you file, you (and all the creditors you list in your bankruptcy papers) will receive a notice that a "creditors meeting" has been scheduled. The bankruptcy trustee runs the meeting and, after swearing you in, may ask you questions about your bankruptcy and the papers you filed. In the vast majority of Chapter 7 bankruptcies, this is the debtor's only visit to the courthouse.

Most property owned by Chapter 7 debtors is either exempt or is essentially worthless for purposes of raising money for the creditors. As a result, few debtors end up having to surrender any property, unless it is collateral for a secured debt.

At the end of the bankruptcy process, all of your debts are wiped out (discharged) by the court, except:

• debts that automatically survive bankruptcy, such as child support, most tax debts, and student loans, unless the court rules otherwise, and
• debts that the court has declared nondischargeable because the creditor objected (for example, debts incurred by your fraud or malicious acts).

Reprinted with permission from the publisher, Nolo, Copyright 2008, http://www.nolo.com/