The Bankruptcy Code is made up of eight different sections or “chapters”. Almost all bankruptcies are filed under sections commonly known as chapter 7, chapter 11 and chapter 13. Of these three, the chapter 7 bankruptcy is most popular.
In a chapter 7 bankruptcy, non exempt assets are “liquidated” or distributed to creditors based on the order of creditor importance (at least according to congress). A court appointed trustee is appointed to manage the liquidation of this non exempt property and to distribute it to creditors. If no one objects to the discharge of certain debts then the filer is discharged from his or her obligation to pay it.
The main reason that a chapter 7 bankruptcy is popular, is that it is typically quick. A well thought out bankruptcy that is also a “no asset case”, i.e. there are no non exempt assets which are worth enough for the trustee to liquidate, is theoretically a 3-4 month process from filing to discharge.