Signed in as:
Chapter 7 Bankruptcy
Liquidation: where all of your property becomes part of something called the bankruptcy estate.
A person known as the trustee is responsible for seeing that your creditors (people to whom you owe money) receive as much as they are allowed under the law. S/he does this by auctioning off the property of the bankruptcy estate, which you used to own.
If you have pledged certain property as security for a debt, such as a car for a car loan, that debt is called secured debt. Usually, a person's secured debt is comprised of cars and homes, but other things sometimes fall in that category as well.
All other debt is unsecured (usually includes credit card bills and medical bills).
As an example, let’s say a trustee auctions your home for $100,000, but you only owed $75,000. In that scenario, the $75,000 goes to whomever you owed it to, and the rest is distributed among unsecured creditors in proportion to their amount of your total unsecured debt.
However, if you owed more than property securing a debt is worth, the creditor takes ownership.
An important note: under the Bankruptcy Code, there are "exemptions." Exemptions are things you are allowed to keep out of the bankruptcy estate so that you are not left without anything.
The Code allows each state to opt out of those exemptions and use their own exemptions. Most states have done just that. A full list of those exemptions by state can be found by following this link.
It is also possible to redeem/reaffirm a debt; this is usually done to keep a car or jewelry, and more information on that can be found here.