Table of Contents
- Chapter 7 Bankruptcy: Liquidation Basics
- What Is Chapter 7 Bankruptcy?
- Who Qualifies for Chapter 7?
- What Debts Are Discharged?
- What Happens to Your Property?
- The Chapter 7 Bankruptcy Process
- What Are the Benefits of Chapter 7?
- What Are the Drawbacks?
- When Should You Consider Chapter 7?
- How ReferU.AI Can Help
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Chapter 7 bankruptcy offers individuals a viable solution for eliminating overwhelming debt and achieving a fresh financial start. This guide explains the basics of liquidation bankruptcy, including who qualifies and how a bankruptcy attorney near you can assist in navigating the process effectively.
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Learn about Chapter 7 bankruptcy, a fast way to eliminate unsecured debts and get a fresh start. Discover who qualifies, the benefits and drawbacks, and how an experienced bankruptcy attorney near you can guide you through the liquidation process.
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Chapter 7 Bankruptcy: Liquidation Basics
If you're struggling with overwhelming debt and looking for a fast way to reset your finances, Chapter 7 bankruptcy might be the solution. Also called “liquidation bankruptcy,” Chapter 7 is the most common type of consumer bankruptcy in the United States. It’s designed to help people erase most unsecured debts and get a fresh financial start.
In this post, we’ll break down what Chapter 7 bankruptcy is, how it works, who qualifies, and what you can expect from the process. We'll keep things practical and easy to follow—no legal background required.
💡 For every post in this series, scroll down to “Related Posts.”
What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is a federal legal process that allows individuals (and businesses) to eliminate most debts by liquidating non-exempt assets. The goal is to give the filer a clean slate by discharging debts like credit cards, personal loans, and medical bills.
Unlike Chapter 13, there is no repayment plan involved. If you qualify, your debts are discharged relatively quickly—usually within a few months.
Who Qualifies for Chapter 7?
Not everyone can file Chapter 7. Eligibility is determined by something called the means test, which compares your income to the median income in your state. If your income is below the threshold, you likely qualify. If it’s higher, you may still be eligible depending on your allowable expenses.
A bankruptcy attorney near you can help you calculate the means test and determine your eligibility.
What Debts Are Discharged?
Chapter 7 can eliminate most unsecured debts, including:
- Credit card balances
- Medical bills
- Personal loans
- Utility bills
- Old lease balances or repossession deficiencies
Some debts typically cannot be discharged:
- Student loans (except in rare hardship cases)
- Child support and alimony
- Certain taxes
- Court fines or restitution
What Happens to Your Property?
The big question most people have: “Will I lose my stuff?”
The answer depends on your state’s exemption laws, which determine what property you can keep. Most Chapter 7 filers keep all or most of their possessions, including:
- A primary residence (up to a certain equity amount)
- A vehicle (up to a certain value)
- Household goods
- Clothing
- Retirement accounts
To learn more about exemptions, check out How State Exemptions Differ: Keeping Your Home, Car, and Other Assets.
The Chapter 7 Bankruptcy Process
Here’s what the process looks like:
- Pre-filing Credit Counseling – Complete a mandatory counseling session from an approved provider.
- Filing Your Petition – Submit your paperwork to the bankruptcy court, triggering an automatic stay that halts collections.
- 341 Meeting of Creditors – A short hearing where you answer basic questions under oath. Creditors rarely attend.
- Trustee Review – The court-appointed trustee reviews your assets and may sell any non-exempt property.
- Discharge – If all goes well, your qualifying debts are discharged in 3–6 months.
Get the full breakdown in Key Bankruptcy Court Procedures: An Introduction to the Judicial Process.
What Are the Benefits of Chapter 7?
- Immediate relief from collections, lawsuits, and wage garnishment
- Fast discharge (usually within months)
- Fresh start with a clean financial slate
- You may keep most or all of your assets
What Are the Drawbacks?
- Damage to your credit (Chapter 7 stays on your report for 10 years)
- Doesn’t eliminate all types of debt
- You may lose non-exempt assets (if any)
When Should You Consider Chapter 7?
Chapter 7 is best for people who:
- Have mostly unsecured debts
- Have low income or no realistic way to repay their debt
- Aren’t trying to catch up on mortgage or car payments
- Want quick relief without a long-term repayment plan
If this sounds like you, talk to a bankruptcy attorney near you to discuss whether Chapter 7 is your best option.
How ReferU.AI Can Help
ReferU.AI helps connect individuals with an experienced bankruptcy attorney near you, matched by case type, debt level, and location. Our AI-powered platform ensures you find a lawyer who understands both federal bankruptcy procedures and your state’s unique exemption laws.
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