Because Chapter 7 bankruptcy involves liquidating assets, you might fear you could lose many of your possessions by filing for it. However, many people who go through Chapter 7 bankruptcy come out of it without having to sell off anything. Whether this may happen or not will depend on what you own and whether your possessions qualify for exemption.
According to bankruptcy law, you may exempt certain assets from liquidation because they are important to your livelihood and your ability to generate income. The U.S. Courts website explains what happens when a Chapter 7 bankruptcy does not involve any nonexempt assets.
No asset cases
Like other bankruptcies, in a Chapter 7 bankruptcy, a judge will appoint someone to act as your bankruptcy trustee. The trustee will administer your case and sell off your assets to pay creditors, provided the assets are eligible for liquidation. If a trustee can sell some of your assets, unsecured creditors have 90 days to file a proof of claim while governmental entities have 180 days to file.
However, many Chapter 7 cases that involve individual debtors are “no asset” cases. In these situations, everything a bankruptcy filer owns is exempt under bankruptcy law, has a lien on it already, or is not valuable enough to sell off to pay creditors. The bankruptcy trustee will file a “no asset” report with the court, meaning unsecured creditors cannot file proofs of claim since there will be no payments.
This does not mean that a no asset case will stay that way for the duration of the case. It is possible for a trustee at a later time to uncover an asset eligible for liquidation. Bankruptcy trustees have “avoiding powers” which allow them to pursue money or property that the bankruptcy filer may have transferred shortly before the bankruptcy. Upon recovering these assets, a bankruptcy court may allow unsecured creditors additional time to file their claims.