Chapter 7 bankruptcy is also called liquidation bankruptcy, it cancels your debts, but you might have to let the bankruptcy court liquidate some of your property for the benefit of your creditors.
Chapter 7 bankruptcy refers to the chapter of the federal statutes of the US Bankruptcy Code that contains the bankruptcy law.
To file for bankruptcy, you fill out a two page petition and several additional forms. Then you file the petition and forms with the bankruptcy court in your district. Basically, the forms ask you to describe:
current income and its sources
current monthly living expenses
property you claim the law allows you to keep through the bankruptcy process (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.
If you're facing an emergency, like a foreclosure or repossession in the next few days, you can file just the petition, but you must file the rest of the forms within 15 days.
Filing for bankruptcy puts into effect an "Order for Relief" known as "automatic stay." The automatic stay immediately stops your creditors from trying to collect what you owe them. So, temporarily, creditors cannot legally garnish your wages, empty your bank account, go after your car, house, or other property, or cut off your utility service.
The Bankruptcy Discharge
At the end of the bankruptcy process, all of your debts are discharged by the court, except:
debts that automatically survive bankruptcy, unless the court rules otherwise
debts that the court has declared nondischargeable because the creditor objected (for example, debts incurred by fraud)