Chapter 7 Bankruptcy

Chapter 7 bankruptcy, often called liquidation bankruptcy, is a process under the U.S. Bankruptcy Code where a court-appointed trustee may sell (liquidate) non-exempt property to pay creditors, after which most remaining eligible unsecured debts — credit cards, medical bills, personal loans — are discharged.

To file Chapter 7, you must first pass the means test, a federal calculation set out in the Bankruptcy Code and administered under rules published by the U.S. Trustee Program (part of the Department of Justice). The means test compares your average income over the prior six months to the published median income for a household of your size in your state; state median income figures are updated periodically by the U.S. Trustee Program.

If your income is at or below the applicable state median, you generally pass the means test without further calculation. If it is above the median, a second, more detailed calculation involving allowed expenses and deductions determines eligibility.

Most filers are considered 'no-asset' cases, meaning their property is protected by state or federal bankruptcy exemptions and nothing is sold. Exemption rules vary by state — see our Florida exemptions guide for a state-specific example.

Most Chapter 7 cases take roughly three to six months from filing to discharge.

Before filing, federal law requires a credit counseling course from an approved agency, generally within 180 days before the case is filed, and a debtor education course before discharge.

A short meeting of creditors (often called a 341 meeting) is typically held about a month after filing; discharge often follows within 60–90 days after that meeting if there are no complications.

As of recent U.S. Courts fee schedules, the Chapter 7 filing fee is a few hundred dollars (published on uscourts.gov and subject to periodic adjustment); fee waivers or installment payment of the filing fee may be available for low-income filers.

Attorney fees vary by region and case complexity; many consumer Chapter 7 cases involve attorney fees in the low thousands of dollars, though fees differ by attorney and location.

Required credit counseling and debtor education courses typically carry modest separate fees.

A Chapter 7 filing appears on credit reports for up to ten years from the filing date, which can significantly affect credit scores, especially initially.

Many filers see their scores improve over time after discharge because their debt-to-income and overall debt burden drops sharply, but the bankruptcy notation itself can affect approval for new credit for years.

Some lenders offer credit products to people with a discharged bankruptcy sooner than others; terms and rates typically improve gradually as positive history accumulates.