Chapter 7 bankruptcy is a useful tool for some individuals to discharge most of their debt. Chapter 7 bankruptcy, or “straight bankruptcy,” allows the filer to keep certain property exempt, while the rest is liquidated to satisfy the debt. Liquidation is the forced sale of an asset to satisfy an obligation, like loans or credit. The Bankruptcy Trustee would liquidate all of the filer’s non-exempt property to satisfy outstanding debts.
The credits then accept the payments in satisfaction of the debt; often it can be pennies on the dollar. Anything that is unpaid is discharged by the bankruptcy court.