Chapter 7 is the basic chapter of relief under the United States Bankruptcy Code.  This proceeding is commonly known as a "bankruptcy".  In a Chapter 7 proceeding, unsecured creditors or debts are discharged rather quickly.  The entire proceeding is completed normally in a matter of months.

Creditors, in Chapter 7, have certain rights, as in other chapters, which enable the creditor to move the court to block a discharge of a debtor under certain situations such as fraud, false financial statements, or misrepresentation or when the debt was incurred within certain time frames prior to filing the debtor's petition.  Certain types of debts, such as taxes, child support, guaranteed student loans are automatically non-dischargeable in a chapter 7 proceeding.  In other words, the debtor cannot escape legal liability for certain classes of debt.

Secured creditors are treated in three basic ways.  The debtor may surrender the collateral (realty, vehicle, TV's, stereos, appliances, etc.) back to the creditor and avoid further payment, or the debtor can reaffirm or schedule further payments to repay the value of the collateral at issue.  With respect to mortgages and vehicles, the debtor cannot be in arrears at the time of filing in order to retain possession of the property.

In a Chapter 7 proceeding, a debtor will be allowed to keep property that is exempt or has insignificant value to the estate.  In many cases, if a debtor is current on residential mortgages and vehicle loans, the debtor can discharge unsecured loans, while reaffirming on secured loans, and not lose or forfeit property to the estate due to the insignificant value in the property.