Chapter 7 bankruptcy is a process provided for under the United States Federal Law by which you are entitled to a fresh start on your debts. Chapter 7 usually eliminates most kinds of unsecured debt. Some examples of unsecured debt are credit cards, medical bills, personal loans and deficiencies on repossessed vehicles to name a few. As long as your car and mortgage payments are current and there is no significant equity in your property, you are allowed to keep those assets if you desire but must continue to pay on the loan associated with that asset.
In order to be eligible for Chapter 7 bankruptcy, you must demonstrate to the Bankruptcy Court that all of your income goes to service all of your monthly living expenses. Further, there cannot be any extra disposable income above and beyond your cost of living.