Chapter 7 bankruptcy
The "liquidation" chapter: a trustee sells your non-exempt assets, qualifying debts are discharged, and you emerge debt-free in 4 to 6 months. How the means test works, what property you keep, which debts survive, and honest answers on credit impact.
What Chapter 7 actually does
Chapter 7 is the most common form of personal bankruptcy in the US. When you file, the court appoints a trustee who reviews your finances. The trustee can sell any property that isn't protected by state or federal exemption laws, distribute the proceeds to creditors on a priority schedule, and then discharge the remaining qualifying debts. "Discharge" means the court legally orders your creditors to stop trying to collect on those debts, permanently.
The critical number for most filers is their state's exemption system. In most cases, state exemptions protect the essentials: your home up to a set equity limit (the homestead exemption), one or more cars, household goods, clothing, tools of the trade, and all retirement accounts. The typical Chapter 7 filer ends the case with all their essential property intact, plus a discharge of their unsecured debts (credit cards, medical bills, personal loans). This is called a "no-asset case," and it's the outcome for roughly 95% of Chapter 7 filings.
The means test: who qualifies
The means test is a two-step eligibility check designed to prevent high-income filers from using Chapter 7 when they could afford a Chapter 13 repayment plan.
- Income below state median
If your household's gross income (averaged over the 6 months before filing) is below the median for your state and household size, you automatically pass the means test. You qualify for Chapter 7.
- Income above state median
If you're above the median, a more detailed test calculates your "disposable income" after mandatory living expenses, taxes, and secured debt payments. If disposable income over 5 years would pay less than 25% of your unsecured debts, you still qualify. If it would pay 25% or more, the court presumes abuse of Chapter 7, and you may be required to convert to Chapter 13.
- Exceptions for disabled veterans and specific debt types
Disabled veterans with debts incurred during active duty are exempt from the means test. Cases where debts are primarily business-related (not consumer debts) also skip the means test.
The Chapter 7 timeline
| Stage | Timing | What happens |
|---|---|---|
| Pre-filing credit counseling | Within 180 days before filing | Required 60-90 minute online or phone session with an approved counselor. Costs $10-$50. |
| File the petition | Day 0 | File the petition, schedules, and means test documents. $338 filing fee (waiver available for very low income). Automatic stay goes into effect immediately, stopping most collection actions. |
| Trustee appointed | Day 1 to 7 | The US Trustee's office assigns a panel trustee to your case. You'll receive the trustee's contact information and details about the 341 meeting. |
| 341 meeting of creditors | Day 20 to 40 | You meet with the trustee (often by phone or video) for 5-10 minutes to answer questions about your finances under oath. Creditors rarely attend in consumer cases. |
| Debtor education course | Before discharge | Required second online/phone course about financial management. Costs $10-$40. Must be completed before discharge issues. |
| Creditor objection period | Day 60-90 | Creditors have 60 days after the 341 meeting to file objections to discharge. In most consumer cases, no objections are filed. |
| Discharge order issued | Day 90 to 120 | The court enters the discharge order. All qualifying unsecured debts are permanently wiped out. Your case officially closes. |
What debts are discharged
Discharged (most unsecured debts)
Credit card debt, medical bills, personal loans, old utility bills, deficiency judgments on repossessed cars, old tax debts (3+ years old meeting specific criteria), business debts, and most civil judgments.
Not discharged (survives bankruptcy)
Recent income taxes (less than 3 years old), child support and alimony, court-ordered criminal restitution, debts from DUI injuries, debts from fraud or willful misconduct, and (usually) student loans. See our student loans guide.
Secured debts (keep or surrender)
Mortgage and car loans aren't automatically discharged. You can keep making payments to keep the property ("reaffirmation"), surrender the property to the lender, or redeem the property by paying its current value in a lump sum.
Property tax liens and HOA dues
Pre-filing property tax is often dischargeable. HOA dues before filing are dischargeable; HOA dues after filing (while you still own the property) are not. Post-petition mortgage payments stay with you if you keep the house.
State exemption systems
What you keep depends on your state's exemption laws. All 51 US jurisdictions have their own exemption system, and 15 states give you the choice between state and federal exemptions. The biggest variation is in the homestead exemption (home equity protection):
Unlimited homestead
Florida, Texas, and a handful of others protect unlimited home equity as long as you've owned the home for 40+ months before filing. This makes these states popular for pre-bankruptcy asset structuring, though federal law caps the exemption for out-of-state buyers.
Generous homestead ($100K+)
California, Massachusetts, New York, and others protect $100,000 to $500,000+ in home equity depending on age, disability status, and family situation.
Modest homestead ($25K to $100K)
Most states fall in this range. Enough to protect equity in a typical starter home in most areas; insufficient for larger or paid-off homes in expensive markets.
Minimal homestead (under $25K)
New Jersey, Pennsylvania, and several others have homestead exemptions below $25,000. Filers in these states with significant home equity often must either forfeit the home or opt into Chapter 13.
Common Chapter 7 mistakes
- Transferring property before filing. Trustees have the power to claw back ("avoid") transfers made in the 1 to 4 years before filing. Selling a car to a relative for $1 in the months before bankruptcy is a common cause of case dismissal and fraud allegations.
- Using credit cards right before filing. Charges of $800+ for luxury goods within 90 days of filing, or cash advances of $1,100+ within 70 days, are presumed non-dischargeable. Stop using credit cards 90 days before filing.
- Paying back family loans before filing. "Preference payments" to insiders in the 1 year before filing can be clawed back by the trustee and redistributed to other creditors. Don't "pay back Mom" right before filing.
- Hiding assets. Bankruptcy fraud is a federal crime with up to 5 years in prison. Trustees have broad investigative powers and routinely discover undisclosed assets through bank records, tax returns, and creditor tips.
- Waiting too long to file. Wage garnishments, tax refund seizures, and judgment collection continue until you file. The automatic stay only stops collections after you file, so delaying costs you money in ongoing collection actions.
- Filing without understanding exemptions. Missing an exemption can cost you property. A decent bankruptcy lawyer pays for themselves by correctly applying every available exemption. Free consultations are standard.
Frequently Asked Questions
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What is Chapter 7 bankruptcy?
Chapter 7 is the "liquidation" form of consumer bankruptcy. A court-appointed trustee reviews your assets, sells any non-exempt property, and uses the proceeds to partially pay creditors. In exchange, the remaining qualifying debts are discharged — wiped out permanently. The typical case takes 4 to 6 months from filing to discharge. Most Chapter 7 filers keep all their property because state exemption laws protect the essentials (home, car, clothing, tools of the trade, retirement accounts).
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Who qualifies for Chapter 7 bankruptcy?
You qualify if you pass the "means test." The means test has two parts. First, if your household income is below the median for your state and family size, you automatically qualify. Second, if your income is above the median, you have to show that after necessary living expenses, you don't have enough disposable income to repay a meaningful portion of your debts over 5 years. State median incomes vary widely; see our state-by-state bankruptcy guide for the specific numbers.
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How much does Chapter 7 bankruptcy cost?
The court filing fee is $338 (waiver available for very low incomes). Attorney fees typically run $1,000 to $1,800 for a straightforward case. Credit counseling and debtor education courses (required before filing and before discharge) add $40 to $100 total. Total out-of-pocket for most Chapter 7 cases is between $1,400 and $2,000. See the full cost breakdown for state-specific ranges.
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What debts are discharged in Chapter 7?
Most unsecured consumer debts: credit cards, medical bills, personal loans, old utility bills, most deficiency judgments, some older tax debts. Not discharged: recent income tax debts (less than 3 years old), child support, alimony, most student loans (see student loans in bankruptcy), court-ordered restitution, debts from fraud or willful misconduct, and debts arising from DUI-caused injuries.
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What property can I keep in Chapter 7?
State exemption laws determine what you keep. Common protected categories: your home (up to the state's homestead exemption, which ranges from $25,000 in most states to unlimited in Florida and Texas), one or more vehicles (typically $3,000 to $8,000 per vehicle), household goods and clothing, tools of the trade, and retirement accounts (401(k), IRA, pensions — these are fully protected under federal law in all states). 15 states allow debtors to choose between state and federal exemption systems.
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How long does Chapter 7 take?
Typical timeline: file the petition on day 1, attend the 341 meeting of creditors about 30 days later, wait another 60 days for the creditor objection period to end, then the discharge order usually issues about 4 to 6 months after filing. Simple no-asset cases (where the trustee finds no non-exempt property to liquidate) move fastest. Cases with asset liquidation, creditor objections, or debtor fraud allegations can take a year or more.
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How long does Chapter 7 stay on my credit report?
10 years from the filing date. This is the longest credit reporting period for any consumer financial action, including Chapter 13 (7 years) and most civil judgments (7 years). See our bankruptcy credit impact guide for realistic rebuilding timelines. Most filers see their credit score recover enough to qualify for a car loan within 2 years and a mortgage within 3 to 5 years, contrary to the 10-year doom narrative.
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Can I file Chapter 7 without a lawyer?
Yes, called filing "pro se." About 8 to 10% of Chapter 7 cases are filed without an attorney. It's manageable for simple cases (no real estate, no business debts, no creditor disputes) but comes with real risk: missed exemptions can cost you property, procedural mistakes can result in case dismissal, and the court doesn't give legal advice. Most low-income filers get free help from local legal aid organizations rather than filing alone.
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What's the difference between Chapter 7 and Chapter 13?
Chapter 7 is liquidation: the trustee sells non-exempt assets, remaining debts are discharged, case closes in 4 to 6 months. Chapter 13 is reorganization: you propose a 3 to 5 year repayment plan, pay creditors from future income, keep your property, and get a discharge at the end. Chapter 7 fits people with low income and little equity; Chapter 13 fits people with regular income who want to keep assets or catch up on secured debts (like a mortgage in arrears).