Chapter 7 Bankruptcy is the most commonly filed type of bankruptcy. There is a good reason for this -- it is the most beneficial. If you have high debt, and just a few assets, you can clear the slate and start over. You will not lose your house or other necessary assets, and most importantly your future income will be shielded, unlike in Chapter 13 bankruptcy.

Although Chapter 7 can be for both corporations and individuals, I will focus on the individual side. The most important part of filing a Chapter 7 Bankruptcy is to be able to prove that you deserve it. Bankruptcy is a privilege, and the government wants to make sure you do not abuse it. That being said, there is a lot of grey area, and a good lawyer is key to building the case to insure the best settlement for you.

As mentioned before, you are able to turn over assets to a trustee, who then sells the assets and gives the proceeds to your creditors. In turn, you are relieved of your debts, and will not owe money in the future. As you can tell, this is ripe for abuse...live it up for a short time, then start fresh, leaving your past behind. To a certain extent, this is why the Bankruptcy Abuse Provision and Consumer Protection Act was created.

In summary, Chapter 7 allows you to start over and keep your future earnings, while only losing some of your current assets. You also get the ding on your credit history.