What is Chapter 7 Bankruptcy?
Updated January 24, 2026
A liquidation bankruptcy where non-exempt assets are sold to pay creditors, and remaining eligible debts are discharged, giving the debtor a fresh start.
Understanding Chapter 7 Bankruptcy
Chapter 7 requires passing a means test based on income. Exempt property (home equity, retirement accounts, personal items) is protected. Most unsecured debts are discharged in 3-4 months. Not all debts (student loans, child support, recent taxes) can be discharged.
Examples
- 1Discharging $50,000 in credit card debt
- 2Keeping home and car while eliminating medical bills
- 3Failing means test and converting to Chapter 13
Related Terms
Discharge (Bankruptcy)
The court order that eliminates a debtor's personal liability for certain debts, meaning the debtor is no longer legally required to pay them.
Bankruptcy
A legal proceeding that provides relief for individuals or businesses unable to pay their debts, allowing them to eliminate or restructure debt under court protection.
Chapter 13 Bankruptcy
A reorganization bankruptcy where debtors propose a 3-5 year repayment plan to pay off all or part of their debts while keeping their property.
Automatic Stay
An injunction that takes effect immediately upon filing bankruptcy, stopping most creditor collection actions including lawsuits, wage garnishment, and foreclosure.
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