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Chapter 7 bankruptcy - Discharge your debts legally

Chapter 7 of Title 11 of the United States Bankruptcy Code governs the process of liquidation under the U.S. Bankruptcy Laws. Chapter 7 is the most widespread method of bankruptcy filing in the US.

In a Chapter 7 bankruptcy, the court appointed trustee may cancel many or all of your debts. However, he can also sell (liquidate) some of your assets to make payments toward your creditors. Below provided is an outline of Chapter 7 bankruptcy filing - the eligibility criteria, the various forms needed, the complete filing procedure, and the most importantly - the bankruptcy law amendment in 2005.

Table of contents

Chapter 7 bankruptcy costs & timeline

Chapter 7 bankruptcy filing is relatively not that much expensive. It takes around 3 to 4 months for the whole Chapter 7 process to complete, costs $335 for filing and administrative fees. There are also some other costs associated, including appraisal fees if you own real estate, title search charges, pre-filing credit counseling and post-filing course on financial management.

The bankruptcy trustee charges a fee for monitoring your case. He may charge $15 to $20, which may increase the cost to file Chapter 7. If you can’t afford the Chapter 7 cost, then you can request the court to allow you to pay the filing fee in installments due to financial hardship.

Chapter 7 bankruptcy timeline

Day 1 - 14
  • Submit bankruptcy petition in the court.
  • Pay the bankruptcy filing fees
  • Submit the credit counseling certificate, schedules, and other papers
Day 13 - 33
  • Submit income tax returns to the US
Day 20-40
  • Attend 341 creditors meeting
    File Statement of Intention if not done before
Day 50-70
  • The last date to perform Statement of Intention
Day 80-100
  • Submit Reaffirmation Agreements
  • Receive bankruptcy discharge

Eligibility for filing

You can qualify for chapter 7 bankruptcy when:

  1. You have a very small or no disposable income
  2. Your monthly income is less than the state median income
  3. You have consumer debts
  4. You have completed credit counseling and finance management course

If you have already received a bankruptcy discharge in the last six to eight years (depends on the type of bankruptcy you filed), if a previous Chapter 7 or Chapter 13 case was dismissed within the past 180 days, if you have enough income to feasibly satisfy a Chapter 13 plan, or if the bankruptcy court finds that you have tried to cheat your creditors or concealed your assets, then you won't be able to file for Chapter 7 bankruptcy discharge.

Bankruptcy forms

In order to file Chapter 7 bankruptcy, you need to fill out a petition and a number of other forms. The forms basically ask you to describe:

  • Your property
  • Your present monthly income and expenses
  • Your present debts
  • Your exempt property
  • Property that you owned and money that you spent during the last two years, and
  • Property you sold or handed over during the last two years

Automatic stay - The magic wand

If you file Chapter 7 bankruptcy, it immediately puts into effect an 'Order for Relief'- informally known as the 'Automatic Stay'. Once you file for Chapter 7, this automatic stay immediately stops all collection activities on the accounts. So for the time being (until the judgment is made), creditors cannot garnish your wages, empty your savings or current account, go after your house, car or other property.

Role of the bankruptcy trustee

In Chapter 7 bankruptcy cases, the bankruptcy court exercises its complete authority over the cases through a person called the 'bankruptcy trustee'. A bankruptcy trusteeâs primary duty is to make sure that the creditorsâ interest is taken care of. The trustee works hard in order to pay back the creditors as much as possible by liquidating your assets, and the more assets the trustee recovers from you, the more the trustee is paid.

The bankruptcy trustee or the associates examine your papers to make sure nothing is wrong with them and look for nonexempt property in order to sell them and pay off your creditors. The trustee also goes through the financial transactions that you made during the previous years. The purpose of doing this is to free up assets and distribute the valuation among your creditors by liquidating them.

Creditors meeting

One or two weeks after the filing, you and your creditors receive a notice from the bankruptcy court stating that a "creditors meeting"has been scheduled. The bankruptcy trustee solely conducts the meeting, and once you swear in, may ask you questions regarding your assets and the papers you have filed. For the meeting, the trustee may ask you to bring things like copies of your mortgage papers, car titles, latest bank statements, property deeds, tax returns and paychecks. In the vast majority of Chapter 7 bankruptcy cases, this is perhaps the only visit to the courthouse that a debtorâs make.

What happens to your property

If the bankruptcy trustee determines that you have some nonexempt property, you are required to either yield that property or provide the trustee with its equal value in cash. However, if the value of the property is not enough to pay off the debt or troublesome for the trustee to sell, the trustee may abandon the property. This means that even though the property is nonexempt, you can keep it. However, list of exempt and nonexempt property varies from state to state. Find details of exempt and nonexempt property in the US State Bankruptcy Laws.

How Secured Debts Are Treated

If you have some secured debts (those which you have obtained by placing collaterals), and if you are behind on your bills, the creditor may ask the court to raise the 'automatic stay' in order to repossess or foreclose on your property. On the contrary, if you are paying your bills on time, you can keep your property and go on making the bills as before.

Again, if a creditor has imposed a lien in your property as of the debt, which you havenât paid yet, the debt will be taken as secured. However, if you file for Chapter 7, you may be able to remove the lien.

Chapter 7 Bankruptcy Discharge

Once all the bankruptcy procedures are complete, the court wipes out all your debts, except:

  • Debts that canât be discharged in bankruptcy (child support, most tax debts, and student loans), unless the courtâs verdict goes otherwise, and
  • Debts that the court declares as nondischargeable because of protest from the creditorâs end (debts incurred by fraud or other scams).

Advantages of Chapter 7 bankruptcy

Read on to find out the advantages associated with filing a Chapter 7 bankruptcy:

  1. It's a shorter process: As compared to other bankruptcy chapters, this particular one is generally of a lesser time span. The exact amount of time taken depends on the state in which bankruptcy is filed and on your individual financial condition.
  2. Doesn't include future income: Chapter 7 effectively doesn't include your future income. In this case, the court is more concerned with what you've earned in the 6 months prior to bankruptcy filing. The income you receive on going forward after your bankruptcy case is technically not a part of what you call the bankruptcy estate.
  3. Legal fees are less: The legal fees charged for Chapter 7 are comparatively less. Even in case you're hiring an attorney, it doesn't amount to any exorbitant amount.
  4. No payments or paperwork: This is perhaps one of the greatest advantages of filing for Chapter 7. There's no payment involved here nor too much paperwork. This makes the entire process far less troublesome.
  5. Quicker recovery from the episode: It's generally known that recovery from a Chapter 7 is far quicker than from any other bankruptcy chapter. This makes the aftermath of the process far easier to deal with.

Bankruptcy law amendment of 2005

On October 17, 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) came into effect. After the legislation of 1978, this was the biggest amendment to the US Bankruptcy Code. One of the major purposes of this amendment was to prevent abuses of the bankruptcy laws. Some of major changes that took place are as followed:

  1. Means test: Debtors filing for Chapter 7 bankruptcy are required to fill out the Official Bankruptcy Form, 22A. This form is specifically meant for 'means test' where you need to provide information regarding your monthly income and expense.

    The main purpose of 'means test' is to determine whether or not your income is low enough for you to file Chapter 7 bankruptcy. Means test is nothing but a formula designed to keep filers with high income from filing Chapter 7 bankruptcy. However, this in anyway, does not mean that you have to be bankrupt in order to qualify for Chapter 7. Rather, you can have significant monthly income and still pass the 'means test' if you have high expenses, such as huge mortgage payments.
  2. Credit counseling: âEligibility to fileâ is another section of the law that the BAPCPA changed drastically. As per the changed legislation, no debtor is eligible to file for Chapter 7 unless the debtor receives âan individual or group briefing's from a nonprofit credit counseling agency approved by the United States Trustee, Dept. of Justice within 180 days prior to filing. Again, the debtor should complete an 'instructional course concerning personal financial managementââ. Not doing thus may comprise grounds for rejection of discharge.


Good news. You can file Chapter 7 online. Usually, filing Chapter 7 involves 3 steps.

  • Step 1: Filling out bankruptcy forms
  • Step 2: Submitting them at the court
  • Step 3: Attending the 341 meeting

You can do the first 2 steps online but you have to attend the 341 meeting physically. That can’t be done online.
It’s best to consult an attorney for online bankruptcy chapter 7 because he knows all the steps and laws very well.

A Chapter 7 bankruptcy attorney charges a fee for his services, which typically ranges between $1500 to $3000. This fee adds up to the Chapter 7 cost. And, this is why many people want to file low-cost bankruptcy chapter 7. But filing chapter 7 on your own is not a wise idea because the success rate is not high.
With a chapter 7 lawyer, the success rate is 95%. But the dismissal rate of ‘self-filing bankruptcy chapter 7’ is 4 times higher than the cases represented by the attorneys.
Filing bankruptcy with a Chapter 7 attorney has lots of advantages over pro se bankruptcy (which is also known as self file bankruptcy). Here are a few of them:

  • An attorney can explain different types of bankruptcy chapters and give you a preliminary idea.
  • The attorney can tell you if declaring bankruptcy chapter 7 is the best option for you.
  • He can tell you the individual bankruptcy chapter 7 laws so that you don’t make any mistake.
  • He can help you understand the chapter 7 eligibility criteria clearly.
  • He can help you apply for the means test properly.
  • He can help you to understand the correct value of your assets.
  • He can explain how to use the state or federal exemption rules to protect your assets.
  • He can make you understand the debts that can or can’t be discharged in bankruptcy.
  • He can help you fill out the forms and complete the other paperwork necessary for submitting the chapter 7 bankruptcy protection.
  • After filing chapter 7 bankruptcy, an automatic stay is imposed immediately. If creditors violate the automatic stay, then the attorney can help you take legal steps against them.
  • If you have any plans for filing chapter 13 after chapter 7, then, in that case, the attorney can help you to make an informed decision.
  • He can explain the alternatives to personal bankruptcy chapter 7.
  1. Go to the legal aid offices. You can get free legal advice from there.
  2. Contact NACBA (National Association of Consumer Bankruptcy Attorneys) and National Association of Consumer Bankruptcy Attorneys. It is the hub for bankruptcy attorneys.
  3. Get in touch with the State Bar Association to connect with a local Chapter 7 bankruptcy attorney.
  4. Browse through the online lawyer directories.

As per the Chapter 7 bankruptcy laws, you can file bankruptcy without your spouse. You can file individual chapter 7 bankruptcy alone, but it can have an impact on your spouse depending on:

  1. If you have joint assets and debts with your spouse
  2. The property laws and bankruptcy laws in your state
  3. Whether you’re filing Chapter 7 or Chapter 13 bankruptcy

If you file bankruptcy without your spouse, then remember one fact very well. When you file bankruptcy for discharging joint debts, they will be reported to your spouse’s credit report as well. Plus, creditors can still come after your spouse for payments since the automatic stay is not imposed her. She is not under chapter 7 bankruptcy protection.

Plain and simple, Chapter 7 bankruptcy can be dismissed under the following circumstances:

  1. You have committed bankruptcy fraud
  2. You didn’t pass the Means Test
  3. You didn’t complete the compulsory education course
  4. You didn’t pay chapter seven bankruptcy filing fees
  5. You didn’t submit bankruptcy forms and documents
  6. You didn’t attend the 341 meeting

US State Bankruptcy Laws

Last Updated on: Mon, 29 Mar 2021