Chapter 7 Bankruptcy

Chapter 7 bankruptcy is known as the “liquidation” bankruptcy where the debtor’s nonexempt assets are sold. The proceeds from the sale are distributed among each of the creditors listed in the bankruptcy. The remaining debt is discharged. The debtor gets to keep exempt assets.

Video: Chapter 7 Bankruptcy Offers Advantages

Who Qualifies for Chapter 7 Bankruptcy

Bankruptcy CourtAn individual, partnership, corporation or other business entity can file for Chapter 7 bankruptcy. Under the new bankruptcy law, there is a means test for individuals filing bankruptcy. Passing the means test allows the debtor to proceed with Chapter 7 bankruptcy. However, if the debtor doesn’t meet means test qualifications, the debtor has to file a different type of bankruptcy. If you’re just over the means test threshold, you may be able to give up to 15% of your income to charity to avoid filing Chapter 13 bankruptcy.

Anyone who had a bankruptcy dismissed in the previous 180 days cannot file bankruptcy again.

How to File Chapter 7 Bankruptcy

You can initiate a Chapter 7 bankruptcy case by filing a petition in your local bankruptcy court. Businesses can file in a court where their corporate headquarters is located. You can locate your local bankruptcy court by using the online search page provided by the Administrative Office of the U.S. Courts or by calling (202) 502-2600.

Final NoticeWhen your petition is filed, you must also include:


If most of your debts are consumer debts, then you’re also required to have a certificate of credit counseling showing that you received credit counseling from a government-approved credit counseling agency. You can use the U.S. Department of Justice search form to find approved credit counseling agencies near you. Or, you can call (202) 524-4100.

If you’re employed, then you need to have proof of income you received 60 days before filing.

Chapter 7 bankruptcy costs a total of $309. That doesn’t include fees charged by your bankruptcy attorney. You can pay your fees over four installments. If you can’t afford to pay, you may be able to have your fees relieved by the bankruptcy court.

What Happens After You File

Once you’ve filed your Chapter 7 bankruptcy petition, a trustee is assigned to your case. The trustee is primarily responsible for attending the creditor’s meeting and determining your exempt and nonexempt assets. If you have nonexempt assets, the trustee sells those assets and distributes the proceeds among your creditors.

The Chapter 7 asset exemption rules vary by state. Typically retirement accounts, part of the equity in your home, and part of the equity in your vehicle are exempt. Some other assets, like furniture, aren’t worth enough to liquidate so they are usually exempt too. Your bankruptcy attorney or trustee will help you decide if your assets are exempt from liquidation.

At the end of the Chapter 7 bankruptcy process, you are released from your debt liability. However, in rare situations, you may have your bankruptcy dismissed if you:

Advantages of Chapter 7 Bankruptcy

One of the best things about Chapter 7 bankruptcy is that most, if not all, your credit card and medical debts are wiped out within a few months.

Once you’ve filed bankruptcy, you have an automatic stay from your creditors. That means they can’t contact you to collect the debts.

Video: Filing for Chapter 7 Bankruptcy Has New Requirements

Disadvantages of Chapter 7 Bankruptcy

If you own a home, a car, or other valuable property, you risk losing it in chapter 7 bankruptcy proceedings.

You have to earn less than the median income in your state to qualify for chapter 7 bankruptcy. Otherwise, you’ll have to file Chapter 11 or 13 bankruptcy.

Filing Chapter 7 bankruptcy will go on your credit report and stay there for 10 years. You’ll have a hard time borrowing money and even getting a job as long as the bankruptcy entry is on your credit report.

Filing bankruptcy is a financial and emotional decision that can impact the rest of your life. Get legal advice from a bankruptcy attorney before filing. The National Association of Consumer Bankruptcy Attorneys can help you locate a professional bankruptcy attorney in your area.


We have provided information as a service to consumers. This is not legal advice and should not be construed as such. For information about filing chapter 7 or any other chapter bankruptcy, seek professional legal counsel.