Chapter 7 of the Bankruptcy Code provides for liquidation—the sale of the debtor’s nonexempt property and the distribution of the proceeds to creditors. A chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in chapter 13.

Instead, the bankruptcy trustee gathers and sells the debtor's nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code. Part of the debtor's property may be subject to liens and mortgages that pledge the property to other creditors.

In addition, the Bankruptcy Code will allow the debtor to keep certain "exempt" property; but a trustee will liquidate the debtor's remaining assets. Accordingly, potential debtors should realize that the filing of a petition under chapter 7 may result in the loss of property.

In Texas, Chapter 7 bankruptcy is governed by both federal law and state-specific exemptions. Under Chapter 7, individuals or businesses can liquidate their nonexempt assets to pay off creditors, without the need to file a repayment plan as required in Chapter 13 bankruptcy. A bankruptcy trustee is appointed to oversee the sale of the debtor's nonexempt property and distribute the proceeds to creditors. Texas law provides a list of exemptions that allow debtors to keep certain property out of the bankruptcy estate, such as homestead, personal property, and retirement accounts, among others. These exemptions are designed to help debtors maintain a basic standard of living despite going through bankruptcy. It's important for debtors to understand that filing for Chapter 7 bankruptcy could result in the loss of property if it is not covered by exemptions. Debtors in Texas may choose between state exemptions or federal exemptions provided in the Bankruptcy Code, but they cannot mix and match from both lists.