Chapter 7 Bankruptcy
Get a fresh start by discharging most unsecured debts through liquidation
Calculate Your Savings
What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy, often called "liquidation bankruptcy" or "straight bankruptcy," is the most common form of bankruptcy filed in the United States. It provides individuals with a fresh start by discharging most unsecured debts.
In a Chapter 7 case:
- A court-appointed trustee may sell your non-exempt assets to pay creditors
- Most unsecured debts (credit cards, medical bills, personal loans) are discharged
- The process typically completes in 3-6 months
- You receive an automatic stay that stops collection actions, lawsuits, and wage garnishments
- Certain debts like student loans, child support, and recent taxes generally cannot be discharged
To qualify for Chapter 7, you must pass the "means test," which compares your income to the median income in your state. If your income is below the median or you don't have sufficient disposable income to repay debts through a Chapter 13 plan, you may qualify for Chapter 7.
Advantages of Chapter 7 Bankruptcy
Complete Debt Discharge
Most unsecured debts are completely eliminated, including credit cards, medical bills, and personal loans.
Quick Process
Chapter 7 cases typically complete in just 3-6 months, much faster than Chapter 13's 3-5 year plan.
Automatic Stay
Immediately stops collection calls, lawsuits, wage garnishments, and foreclosure proceedings.
No Repayment Plan
Unlike Chapter 13, you don't have to commit to a 3-5 year repayment plan. Discharged debts are simply gone.
Keep Exempt Property
Federal and state exemption laws protect essential assets like your home, car, retirement accounts, and household goods.
Fresh Start
Provides a clean slate to rebuild your finances without the burden of overwhelming debt.
Disadvantages of Chapter 7 Bankruptcy
Credit Score Impact
Chapter 7 remains on your credit report for 10 years, significantly impacting your ability to obtain credit.
Risk of Losing Non-Exempt Assets
The trustee can sell non-exempt property like second homes, valuable collections, or expensive vehicles to pay creditors.
Not All Debts Discharged
Student loans, child support, alimony, recent taxes, and secured debts (unless you surrender the collateral) survive bankruptcy.
Public Record
Bankruptcy filings are public records, which may affect employment opportunities or professional licenses.
Means Test Qualification
Not everyone qualifies. If your income is too high, you may be forced into a Chapter 13 repayment plan instead.
Limited Future Filings
You cannot file another Chapter 7 for 8 years, limiting your options if financial difficulties return.
Who Should Consider Chapter 7?
Chapter 7 bankruptcy may be the right choice if you:
- Have overwhelming unsecured debt you cannot repay
- Pass the means test (income below state median or limited disposable income)
- Have mostly exempt assets or few valuable non-exempt assets
- Need immediate relief from collection actions and lawsuits
- Want a quick resolution (3-6 months) rather than a long repayment plan
- Have not filed Chapter 7 bankruptcy in the past 8 years
See If Chapter 7 Could Work for You
Use our calculator to compare Chapter 7 with other options and see potential interest savings.