Chapter 7 bankruptcy

What It Means

Chapter 7 is the liquidation chapter of the federal BankruptcyBankruptcyA federal court process for people and businesses that can't pay their debts, ending in a discharge of many debts after an asset sale or a repayment plan. See more Code. A court-appointed trustee takes charge of your property, sells what the law doesn't let you keep, and pays creditors from the proceeds, while you keep property that's exempt. According to U.S. Courts, most individuals receive a discharge of their remaining eligible debtsLiabilitiesDebts and other money you owe, such as a mortgage, a car loan or a credit card balance. Your assets minus your liabilities is your net worth. See more about four months after filing. Individuals must pass a means test that looks at income before they can use this chapter.

How People Say It

• "We're filing Chapter 7 and starting over."
• "The lawyer ran the means test and we're under the median."
• "Once the discharge came through, the card debt was gone."

The Breakdown

What the rule says. Chapter 7 is court-supervised liquidation. A trustee turns your nonexempt property into cash and distributes it to creditors, subject to your right to keep exempt property and to the rights of secured creditors such as a car lender. After that, the court grants a discharge, and you have no personal liability for the debts it covers. Some debts survive it: U.S. Courts lists alimony, child support, certain taxes, certain student loansStudent loanMoney borrowed to pay for college or career school, repaid with interest after you leave school; it comes from the federal government or a private lender. See more made or guaranteed by a government unit, and debts for injury or death caused by driving while intoxicated, among others.

Who it applies to. Individuals, couples and businesses can file, with individuals subject to the means test. The test compares your income with the median for a household your size in your state; if your disposable income is above the thresholds, the U.S. Trustee or a creditor can ask the court to dismiss the case. The U.S. Trustee Program publishes the median figures, and its spring 2026 update applies to cases filed on or after April 1, 2026.

Documents needed

• The certificate from credit counselingCredit counselingAdvice from a trained counselor, usually at a nonprofit agency, on your budget and debts, which can lead to a debt management plan or other next steps. See more taken within 180 days before filing
• The petition and schedules of your assetsAssetsThings you own that are worth money, such as cash, investments, a home or a car. Your assets minus your debts is your net worth. See more, debts, income and expenses
• A statement of your financial affairs
• After filing, the certificate from an approved debtor education course, before the discharge
• The fees U.S. Courts lists: $245 filing, $78 administrative and $15 trustee surcharge, $338 in all

Official source. U.S. Courts, "Chapter 7: Bankruptcy Basics" and "Discharge in Bankruptcy," and the U.S. Trustee Program's means testing pages, checked September 30, 2026.

Good to Know

Exemptions, the property you get to keep, depend on federal and state law, so what's protected differs by state; a bankruptcy attorney or legal aid office can tell you what applies where you live. Keep up with payments on a car or home you want to keep, since secured creditors keep their rights. Experian says a Chapter 7 can stay on your credit reportCredit reportA record of how you've borrowed and repaid, kept by credit bureaus and sold to lenders, landlords, insurers and others who decide whether to deal with you. See more for up to 1010,000 stepsA popular daily step goal that began as the name of a 1960s Japanese pedometer; later studies find health benefits begin well below it. See more years from the filing date. Compare Chapter 13Chapter 13 bankruptcyA form of bankruptcy in which you keep your property and repay creditors through a court-approved plan lasting three to five years. See more, which lets you keep property and repay over three to five years.

Related Terms and Categories

• Bankruptcy

  A federal court process for people and businesses that can't pay their debts, ending in a discharge of many debts after an asset sale or a repayment plan.

• Chapter 13 bankruptcy

  A form of bankruptcy in which you keep your property and repay creditors through a court-approved plan lasting three to five years.

• Credit counseling

  Advice from a trained counselor, usually at a nonprofit agency, on your budget and debts, which can lead to a debt management plan or other next steps.

• Credit report

  A record of how you've borrowed and repaid, kept by credit bureaus and sold to lenders, landlords, insurers and others who decide whether to deal with you.

• Debt settlement

  Paying a creditor a lump sum that's less than the full balance, often through a for-profit company, in exchange for the creditor treating the debt as resolved.

• Secured debt

  Money you owe that's backed by collateral, such as a home or car, which the lender can take if you don't repay.

Debt and credit