by 
The Curious Bag
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Chapter 7 bankruptcy requires that all assets be sold to generate cash for creditors. However, a quirk of the federal bankruptcy law gives individual states permission to establish "exemptions" allowing for the exclusion of some items from liquidation.
History
The first bankruptcy law was enacted in England in 1542 and in the U.S. in 1841. U.S. bankruptcy law was further modernized in 1898.
Assets to Be Sold
Many assets (bank accounts, furniture, jewelry) must be sold to generate cash for creditors. However, states have laws that allow a debtor to "exempt" certain assets from the bankruptcy.
Typical Exemptions
Some secured assets and personal property that are often exempt from liquidation include homes, cars and other personal assets. Limits are described in each state's regulations.
Features
Exempting some assets from liquidation allows people to re-start their personal and financial lives after bankruptcy.
Benefits
The petitioner's "financial blackboard" is wiped clean. Although assets are sold to generate cash for creditors, all debts, except mortgage and auto loans, are erased, allowing for a new credit start.
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