Bankruptcy Chapters
Chapter 7 Bankruptcy: How It Works and What You Keep
Chapter 7 bankruptcy wipes out most unsecured debt in just a few months. See who qualifies, which property is exempt, and how the process works.
4 min read · Last verified 2026-07-03
Chapter 7 is the fastest and most common form of consumer bankruptcy. For people with limited income and mostly unsecured debt, it can eliminate qualifying balances in a matter of months and give you a fresh financial start.
What Is Chapter 7 Bankruptcy?
Chapter 7 is the "liquidation" chapter of the U.S. Bankruptcy Code. In exchange for a discharge of most unsecured debts, a court-appointed trustee can sell any property you own that is not protected by an exemption and distribute the proceeds to creditors. In practice, most consumer Chapter 7 cases are "no-asset" cases — the filer's property is fully exempt, nothing is sold, and the eligible debt is wiped out entirely.
How Chapter 7 Liquidation Works
When you file, an automatic stay immediately stops most collection activity, including calls, lawsuits, wage garnishment, and foreclosure. A trustee is assigned to review your paperwork and administer any non-exempt assets. You attend a short 341 meeting of creditors, where the trustee asks questions under oath. If everything is in order, the court enters a discharge order releasing you from personal liability for the discharged debts.
Who Qualifies for Chapter 7
Eligibility turns on the means test under 11 U.S.C. § 707(b). If your household income is below the median for your state and household size, you pass automatically. If it is above the median, a second calculation compares your income against allowed living expenses to see whether you have enough left over to repay creditors. Filers who do not pass may still file under Chapter 13.
What Property You Can Keep
Exemptions shield equity in your property up to fixed dollar limits. Some states require you to use their own exemption set; others let you choose the federal list. The current federal exemptions under 11 U.S.C. § 522(d) include:
| Property | Exempt amount | Notes |
|---|---|---|
| Homestead | $31,575 | Can be doubled in a joint filing to $63,150. |
| Vehicle | $5,025 | Protects one motor vehicle up to $5,025 in equity. |
| Household Goods & Furnishings | $800 | Aggregate limit is $16,850 for all items combined. |
Exemption amounts shown are federal figures and are periodically adjusted. Your state's exemptions may differ, so check bankruptcy exemptions and your state's page for local limits.
Which Debts Chapter 7 Discharges
Chapter 7 discharges most unsecured debts, including credit card balances, medical bills, personal loans, and older utility and phone bills. It generally does not discharge most student loans, recent income taxes, child support and alimony, most criminal fines, and debts obtained through fraud. Secured debts like a mortgage or car loan are only "kept" if you stay current on the payments.
Chapter 7 Timeline and Cost
A typical case runs about three to four months from filing to discharge. The court filing fee is $338. Required credit counseling and a debtor education course carry small separate fees, and attorney fees vary by location. Fee waivers and installment plans are available for filers who qualify.
In effect since December 2020. Waivers and installments available.
Chapter 7 vs Chapter 13
Chapter 7 erases eligible debt quickly but requires passing the means test and risks non-exempt assets. Chapter 13 keeps all property and reorganizes debt into a 3-to-5-year repayment plan, which can also stop foreclosure and catch up mortgage arrears.
| Feature | Chapter 7 | Chapter 13 |
|---|---|---|
| Structure | Liquidation | Reorganization |
| Typical duration | 3-4 months | 3-5 years |
| Eligibility | Must pass the means test (income below state median or pass expense calculation). | Must have regular income. Secured debts under $1,580,125 and unsecured debts under $526,700 (limits effective April 1, 2025; adjusted every three years). |
| Property | Exempt assets protected; non-exempt assets may be liquidated by trustee. | All property kept; debts repaid through court-approved plan. |
| Court filing fee | $338 | $313 |
See the full Chapter 7 vs Chapter 13 comparison for a deeper breakdown.
Steps to File Chapter 7
- Complete an approved credit counseling course (within 180 days before filing).
- Gather income, expense, asset, and debt records and run the means test.
- Prepare and file the petition, schedules, and statement of financial affairs.
- Attend the 341 meeting of creditors.
- Complete a debtor education course before discharge.
- Receive your discharge order — the debts are gone.
Frequently Asked Questions
Sources
- 11 U.S.C. § 727 — Discharge (Chapter 7)
- 11 U.S.C. § 707(b) — Means test / abuse dismissal
- 11 U.S.C. § 522(d) — Federal bankruptcy exemptions
- U.S. Courts — Bankruptcy filing fee schedule, fees in effect since December 1, 2020