The Chapter 7 bankruptcy is probably the one most known as it is generally the straight forward liquidation type of bankruptcy.
In general Chapter 7 eliminates most of your debts and the ones that remain are paid off as your assets are liquidated.
With Chapter 7 bankruptcy there is no repayment plan like there is with a Chapter 13 bankruptcy.
When you file a Chapter 7 bankruptcy the date of filing sets the limit of when creditors can place a claim on assets to be liquidated.
This means that if a few days after you filed you Chapter 7 you came into a large win at the casino in Vegas, then the creditors have no claim over that win as it happen after you filed for Chapter 7.
However there are some quirks with these rules as well, which has inheritances, life insurance and property settlements are not safe until 180 days after you have filed.
Most Chapter 7 bankruptcies involve no or very little liquidation of assets as most are non-asset bankruptcies.
This is because the assets are not worth anything or there are no assets at all.
Chapter 13 bankruptcies are different in that you are agreeing to a repayment plan for your debts upwards of a 5 year period.
By agreeing to a Chapter 13 repayment plan means that you do not have to liquidate any assets for the repayment plan.
These repayment plans must be court approved, where both the creditor and yourself must obey the court's ruling, otherwise the court can impose quite severe penalties to the offending party.
Chapter 13 requires you to stick to a budget that covers reasonable lining expenses.
Usually the definition of reasonable living expenses is based on your actual reasonable expenses.
If your income is above the average for your state then the reasonable living expenses is based on the Internal Revenue Collection standards.