It also attempts to provide a fair method for compensating creditors. Every bankruptcy proceeding requires the debtor to file with the court a list of all outstanding debts as well as a complete list of their assets. Exempt assets are those assets that the debtor does not have to use to repay debts. Generally a certain amount of equity in a person's home, a certain amount of equity in a vehicle, a small amount for clothing, and a small amount for other personal items will be considered exempt property. The court will appoint a bankruptcy trustee to oversee the payment of the debtor's debts.
Debts fall into different categories as well.
Secured debts are those for which the creditor has a security interest in some of the debtor's property, usually, but not necessarily, the same property that was purchased with the credit. Secured debts have a priority over non-secured debts. What this means is that secured debts are paid off first. If the debtor can't pay secured debts, the creditor may take the property in which it has a security interest. This allows the debtor to forestall imminent repossessions and foreclosures.