Chapter 7 bankruptcy
Chapter 7, explained without the jargon
Chapter 7 clears most unsecured debt, like credit cards and medical bills, in about four months. Here is how it works and who it is for.
What it does
When you file, a court order called the automatic stay stops most collection at once: the calls, the lawsuits, the wage garnishments. A trustee reviews your paperwork, and if it is in order, the court issues a discharge. The debts it covers are gone, and creditors cannot try to collect them again.
The means test, in plain words
Chapter 7 is meant for people who cannot repay. The means test checks that by comparing your last six months of household income with the median income for a household your size in your state. Many people pass on that first step. If you don’t, a second step subtracts set living expenses to see what would be left to repay.
What you keep
Exemptions protect the property you need: usually a car up to a set value, household goods, the tools of your trade, retirement accounts and some equity in a home. The trustee can sell what isn’t exempt, which is why I list everything you own before we file, not after.
What Chapter 7 clears, and what it leaves
Not every debt goes away. Before you file, you will know which of yours would remain.
Usually cleared
Credit cards and store cards
Medical and hospital bills
Personal and payday loans
Old utility and phone bills
Most court judgments for these debts
Usually left
Child support and alimony
Most student loans
Recent income taxes
Fines, and debts from fraud
A car or house loan, if you keep the car or house
Smaller questions about Chapter 7
How long does it take?
About four months from filing to discharge, plus the two or three weeks it takes to gather your paperwork.
Can I keep a credit card?
Every card with a balance has to be listed. A card with no balance can sometimes stay open, though the bank may close it anyway.
What if I’ve filed before?
There is an eight-year wait between Chapter 7 discharges, and other waits between Chapter 7 and Chapter 13. Tell me the date of your last case and I’ll check.
See whether Chapter 7 fits your numbers
Bring a few pay stubs and the bills that worry you most. In half an hour you’ll know.