Individuals who file bankruptcy usually file under either Chapter 7 or Chapter 13 of the Bankruptcy code. Although they are both types of bankruptcy cases, they differ greatly in their operation.
About Bankruptcy
Chapter 7
Chapter 7 bankruptcy is, in theory, a liquidation process. The principle underlying Chapter 7 is that a person who is willing to give up all of his property should be free of his debts. This principle has been around for centuries. In fact, the word bankruptcy is formed from the ancient Latin bancus (a bench or table), and ruptus (broken). In ancient Rome a merchant or vendor would do business using a bench in public places like a street market. When a vendor went "bankrupt" his creditors would distribute his remaining goods between themselves, and they would then break the vendor's bench to signify that the vendor was no longer in business.
This principle of liquidation of assets in exchange for the elimination of debts remains the rationale behind Chapter 7 bankruptcy. However, modern bankruptcy law is not as harsh. Most people who file Chapter 7 bankruptcy are not actually required to sell off any assets. The primary reason that liquidation of assets is generally not required is the concept of exempt property. Exempt property is property that the person filing bankruptcy is allowed to keep under the law. While the exemption laws vary from state to state, the exemptions provided under Missouri law allow people filing bankruptcy to keep all of their property more often than not.