What type of bankruptcy involves liquidation of a debtor's assets?

Chapter 7 bankruptcy is specifically designed for the liquidation of a debtor's assets to repay creditors. In this process, a trustee is appointed to oversee the sale of non-exempt assets, converting them into cash. This cash is then distributed among the creditors according to the priority of their claims.

The primary goal of Chapter 7 is to give individuals or businesses a fresh start by eliminating most types of unsecured debts while dealing with the liquidation of their assets. After the liquidation is complete, any remaining eligible debts are typically discharged, freeing the debtor from legal obligations to pay them.

In contrast, other chapters like Chapter 11 and Chapter 13 are more focused on restructuring debts and creating repayment plans rather than outright liquidation. Chapter 12 is tailored specifically for family farmers and fishermen, aiming to help them reorganize their debts while remaining in operation. Thus, Chapter 7 is distinct in its approach to asset liquidation.