Chapter 7 Bankruptcy Guide
Eligibility, process, timeline, and what debts can be discharged.
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Chapter 7 bankruptcy discharges most unsecured debts in exchange for liquidating non-exempt assets. It's the fastest form of bankruptcy — typically 3–6 months from filing to discharge — and a legal fresh start for people overwhelmed by debt.
What Chapter 7 Does
Chapter 7 eliminates (discharges) most unsecured debts:
- Credit card balances
- Medical bills
- Personal loans
- Some older tax debts
- Utility bills
- Lease obligations (in some cases)
What Chapter 7 Does NOT Discharge
- Federal student loans (with narrow exceptions)
- Recent tax debts (generally less than 3 years old)
- Child support and alimony
- Debts from fraud or intentional harm
- Recent credit card charges for luxury goods or cash advances (within 70–90 days of filing)
The Means Test
To qualify for Chapter 7, your income must be below your state's median income, OR you must pass a means test showing insufficient disposable income to repay debts. The means test exists to ensure Chapter 13 (repayment plan) is used by those who can afford it.
If your income is above the median, you may still qualify with above-average expenses (high housing costs, significant medical expenses, etc.). A bankruptcy attorney can run the means test calculation for you.
The Automatic Stay
Filing for bankruptcy immediately triggers an automatic stay — a court order that stops all collection activity including wage garnishments, lawsuits, repossessions, and foreclosures. This provides immediate relief from creditor pressure while the case proceeds.
Exempt Assets
Chapter 7 doesn't take everything. Federal and state exemptions protect certain property:
- Your home equity (up to state-specified limits — $27,900 federal, much higher in states like Texas and Florida)
- Your car (up to $4,450 federal)
- Retirement accounts (401k, IRA — typically fully exempt)
- Household goods and tools of the trade
Credit Report Impact
Chapter 7 stays on your credit report for 10 years from the filing date. However, many people find their credit score starts recovering within 1–2 years of discharge as they add positive accounts. Most people can qualify for a car loan 1–2 years post-discharge, an FHA mortgage 2 years post-discharge, and a conventional mortgage 4 years post-discharge.
See also: Chapter 13 vs. Chapter 7 | All Bankruptcy Options
Educational content only. This page is for informational purposes and does not constitute legal, tax, or personal financial advice. Results vary. Laws and bureau processes change. Consult the CFPB, FTC, and AnnualCreditReport.com for authoritative guidance. Full disclaimer
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