Chapter 7 Bankruptcy

A liquidation bankruptcy: non-exempt property may be sold to pay creditors, and qualifying debts are discharged.

Looking for a lawyer rather than a definition? Skip to the state-by-state list of law firms for this.

What it means

Chapter 7 is the form of bankruptcy most people mean by the word. A trustee is appointed, property that is not protected by an exemption may be sold to pay creditors, and qualifying remaining debts are discharged - legally extinguished, so they can no longer be collected.

In practice many individual Chapter 7 cases are "no asset" cases in which nothing is sold, because exemptions cover what the debtor owns. Exemptions are the heart of the analysis and vary considerably: some states require use of a state list, others allow a choice between state and federal lists, and the difference determines what is actually at risk.

Not every debt is dischargeable. Most student loans, recent tax debts, child support and alimony, and debts arising from fraud generally survive. A secured debt is also different from the collateral behind it: discharging personal liability on a car loan does not by itself keep the car.

Where this comes from

When people hire a lawyer for this

The questions worth professional analysis before filing are whether the means test is met, which exemption set applies, and whether the debts causing the problem are actually dischargeable. Filing a Chapter 7 that discharges nothing that mattered is a real and avoidable outcome.

Worried about the cost? A lawyer can be hired for one part of a case only (limited-scope representation), may be paid from what a claim recovers (contingency fee), or may be free through a pro bono programme or legal aid; a court can also waive its own filing fees.

Find a lawyer for this in your state

Choose your state. Each link opens the Bankruptcy directory page for the city in that state with the most currently published law firms that list this work; where a state has more than one, the others open under it. Where a state has no Bankruptcy listing yet, the link opens the broader Bankruptcy & Debt page instead and is marked so. The list is generated when this page loads, so a state whose listings have lapsed drops out rather than becoming a dead link.

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Related terms

Other entries in the same area of law, each written from the same primary sources.

• Automatic StayThe immediate, court-ordered halt to most collection activity that takes effect the moment a bankruptcy case is filed.
• Bankruptcy DischargeThe court order that ends personal liability for the debts covered by a bankruptcy case - what it does, what it does not do to liens and co-signers, when it is entered, and how it can be denied or later revoked.
• Bankruptcy ExemptionsThe property a person filing bankruptcy keeps - the home equity, vehicle, household goods, tools, retirement accounts and other assets the law places beyond the reach of the trustee and creditors - and the state-by-state choice of which exemption list applies.
• Bankruptcy Means TestThe income calculation that decides whether a person may file a Chapter 7 case or is steered into a Chapter 13 repayment plan - a comparison of household income against the state median, followed if necessary by a line-by-line deduction of allowed expenses.
• Bankruptcy Trustee and the Meeting of CreditorsThe person appointed to administer a bankruptcy case and the short, sworn examination every debtor must attend - what the trustee is looking for, who actually turns up, and what happens after.
• Chapter 13 BankruptcyA reorganisation bankruptcy for individuals with regular income: debts are repaid in part through a court-approved plan.
• Collecting a JudgmentWinning a case and being paid are two different things - the second is a separate process the winner has to start.
• Non-Dischargeable DebtsThe debts a bankruptcy discharge does not erase - child and spousal support, most taxes, most student loans, criminal fines, debts from fraud or drunk-driving injuries - and the difference between those that survive automatically and those a creditor must ask the court to preserve.
• Preferences and Fraudulent Transfers (Clawback)The trustee's power to undo payments and transfers made before a bankruptcy was filed - a repayment to a relative, a property signed over to a family member, a creditor paid ahead of the others - and why "I paid my brother back first" is a problem rather than a virtue.
• Reaffirmation AgreementA voluntary agreement in a Chapter 7 case to remain personally liable on a debt - usually a car loan - that the discharge would otherwise wipe out, in exchange for keeping the property; what it costs, the court's role, and the alternatives of redemption and simply continuing to pay.
• Small Business Bankruptcy (Chapter 11 and Subchapter V)The reorganisation chapter for a business that wants to keep operating while it restructures its debts, and the streamlined subchapter Congress added for small businesses - who qualifies, how a plan is confirmed, and what happens to the owner's personal guarantees.

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