What Is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is a court-supervised process that erases most unsecured debt, such as credit card balances, medical bills, and personal loans, in a matter of months. A court-appointed trustee can sell any property an exemption does not protect, but in most consumer cases everything is exempt and nothing is sold.

What Is Chapter 7 Bankruptcy?

Chapter 7 is the "liquidation" chapter of the U.S. Bankruptcy Code, and it is the most common form of consumer bankruptcy. In exchange for a discharge under 11 U.S.C. § 727, the trustee reviews what you own and can sell any non-exempt property to pay creditors. In practice, most consumer filings are "no-asset" cases: the filer's property fits within the exemptions, nothing is sold, and the eligible debt is wiped out. If you are still working out what bankruptcy is in the first place, start there, then come back. This page is the short answer; for the full walkthrough, see our complete guide to how Chapter 7 bankruptcy works.

How Chapter 7 Works

Filing sets off a fixed sequence. The moment your petition hits the court, an automatic stay stops most collection activity: calls, lawsuits, wage garnishment, and foreclosure all pause. A trustee is assigned to your case, and you attend a short 341 meeting of creditors, where the trustee asks questions under oath about your finances. If the paperwork is in order, the court enters a discharge order releasing you from personal liability for the discharged debts.

A typical case runs about three to four months from filing to discharge. The court filing fee is $338, with credit counseling and debtor education courses carrying small separate fees. If money is tight, you can ask to pay the fee in installments or apply for a waiver.

What You Keep in Chapter 7

Exemptions under 11 U.S.C. § 522 shield equity in your property up to fixed dollar limits, and this is why most filers keep everything they own. Under the federal exemptions, you can protect up to $31,575 of equity in your home and $5,025 in one vehicle, along with limited amounts for household goods, tools of your trade, and a wildcard that covers any property.

Which limits apply depends on where you live. Some states require you to use their own exemption set, while others let you choose between state and federal exemptions, and the right choice can change the outcome of your case. Because these figures vary widely, compare your options on the bankruptcy exemptions page and your state's page before you rely on any single number. Secured debts like a mortgage or car loan are only "kept" if you stay current on the payments.

Who Qualifies for Chapter 7

Eligibility turns on the means test under 11 U.S.C. § 707(b). The test compares your average monthly income over the past six months against the median income for your state and household size. If you fall below that median, you pass automatically. If your income is higher, a second calculation weighs your income against allowed living expenses to see whether you have enough left over to repay creditors.

Median figures differ by state and are updated periodically, so the threshold that matters is your own state's. You can compare your income against it with the means test calculator. Filers who do not pass the means test are not out of options: many file under Chapter 13 instead, which keeps all property and repays debt through a court-approved plan. The Chapter 7 vs Chapter 13 comparison walks through which one fits which situation.