What Is Chapter 7 Bankruptcy?
Chapter 7 is liquidation bankruptcy. It wipes out most unsecured debts, such as credit cards and medical bills, usually within about four months of filing. To qualify, your income generally must pass a means test. A trustee can sell non-exempt property to pay creditors, but most filers keep everything because of exemptions. Some debts, like most taxes, child support and student loans, usually survive.
Chapter 7 is the most common type of consumer bankruptcy. It gives a fresh start by discharging qualifying debts quickly (US Courts).
Who qualifies
- Means test: if your household income is below your state's median for your household size, you generally qualify. If above, a formula compares your income with allowed expenses to see whether you could repay creditors; if so, the case may be presumed abusive (11 U.S.C. 707(b)).
- Credit counseling from an approved agency within 180 days before filing (US Trustee Program).
- Prior discharge limits: generally no Chapter 7 discharge within 8 years of a prior Chapter 7 filing.
What happens after filing
- Automatic stay: collection calls, lawsuits, garnishments and most foreclosures and repossessions stop immediately.
- Trustee appointed: reviews your paperwork and looks for non-exempt assets.
- 341 meeting of creditors: about a month later; you answer questions under oath. Creditors rarely attend.
- Financial management course: required before discharge.
- Discharge: typically about 60 to 90 days after the 341 meeting if no one objects.
What you can keep
State or federal exemptions protect certain property, such as equity in a home and vehicle up to set amounts, household goods, tools of the trade, and most retirement accounts. Many filers have no non-exempt assets ("no-asset cases").
Debts discharged
Credit cards, medical bills, personal loans, many old utility bills, and deficiency balances after repossession or foreclosure.
Debts that usually survive
Under 11 U.S.C. 523: child support and alimony, most recent taxes, most student loans, debts from fraud, criminal fines and restitution, and DUI injury debts. Secured debts survive as liens; you keep a house or car only if you keep paying.
Costs
The Chapter 7 filing fee is $338 (US Bankruptcy Court fee schedule effective December 1, 2023), plus counseling course fees and attorney fees. Fee waivers or installments are available for low-income filers. See how much a bankruptcy lawyer costs.
Effects on credit
A Chapter 7 can appear on credit reports for up to 10 years, but many filers begin rebuilding credit soon after discharge. See what to do after filing Chapter 7.
Compare with Chapter 13, and use our bankruptcy documents checklist. A bankruptcy lawyer can run the means test with you.
Sources
- United States Courts: Chapter 7 bankruptcy basics
- Cornell Law School LII: 11 U.S.C. 707(b), Means test
- Cornell Law School LII: 11 U.S.C. 523, Exceptions to discharge
- U.S. Trustee Program: Credit counseling and debtor education
- U.S. Bankruptcy Court, District of Utah: Filing fees effective December 1, 2023
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This article is general legal information, not legal advice, and reading it does not create an attorney-client relationship. Laws differ by state and change over time; talk to a licensed attorney in your state about your situation.