Bankruptcy is the most common type of bankruptcy proceeding. All of the debtor's non-exempt property will be sold, or liquidated, to pay their debts. First, the debtor files a bankruptcy petition in which he lists all of his assets as well as all of his outstanding debt.
Assets fall into two categories.
Exempt assets are those that the debtor will be able to keep after the bankruptcy proceeding. 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 exact value of the exemptions will vary depending on what jurisdiction the bankruptcy is filed in. The trustee who is appointed in the Chapter 7 bankruptcy will collect all of the debtor's non-exempt assets and sell them. The proceeds will be distributed to the creditors according to the priority of the debt.