Chapter 7 bankruptcy: how it works, who qualifies and what it costs

What is Chapter 7 bankruptcy?

Chapter 7 is called liquidation. A trustee may sell a debtor's nonexempt property and pay the proceeds to creditors. Chapter 13 works differently: it is a repayment plan that usually lasts three to five years.1 5

The law lets individuals protect certain property, called exempt property. Depending on state law, you may be able to choose between the federal exemption list and your state's, or you may be limited to state exemptions.6 7 8

If everything you own is exempt or subject to valid liens, the trustee normally files a no asset report and unsecured creditors receive nothing. The federal courts say most Chapter 7 cases filed by individuals are no asset cases.1

That describes cases in general, not yours. Filing Chapter 7 may result in the loss of property, so ask a lawyer which exemptions apply where you live.1 6 7

Who can file Chapter 7?

Individuals, partnerships, corporations and other business entities can file under Chapter 7. Only individuals receive a discharge.1

For individuals whose debts are mostly consumer debts, a means test decides whether the filing is presumed to be an abuse. It is applied when your current monthly income is above your state's median. Current monthly income is your average monthly income over the six calendar months before you file, and Social Security income is not counted. If abuse is presumed, the case may be dismissed or converted, usually to Chapter 13.8 1 9 10

The test uses Census Bureau median income figures and IRS expense standards, which the U.S. Trustee Program publishes and updates regularly.11

• Earlier Chapter 7 discharge: you cannot receive a Chapter 7 discharge if you received one in a Chapter 7 case filed within 8 years before the new petition.12 2
• Earlier Chapter 13 discharge: the period is 6 years, with exceptions that depend on how much the earlier plan paid.12
• Recent dismissal: an individual cannot file under any chapter if, during the preceding 180 days, an earlier case was dismissed because they willfully failed to appear in court or follow court orders.1

How does a Chapter 7 case work, step by step?

These are the usual steps for an individual filer, in order.

1. Take credit counseling from a U.S. Trustee-approved agency within the 180 days before you file.1 13 14
2. File the petition with the bankruptcy court for the area where you live, together with schedules of your assets and liabilities, a schedule of current income and expenditures, a statement of financial affairs, and a schedule of executory contracts and unexpired leases. Individuals with mostly consumer debts add the counseling certificate and proof of pay received in the 60 days before filing.1
3. The automatic stay starts when you file. It needs no action by a judge, and while it lasts creditors generally may not start or continue lawsuits, wage garnishments or even phone calls demanding payment.8 1
4. An impartial case trustee is appointed to run the case. The trustee must get a copy of your most recent tax return.1
5. Attend the meeting of creditors, held between 21 and 40 days after the petition is filed. The trustee questions you under oath. It is not a court hearing and no judge is present.1 15
6. If a car or other property secures a debt, file a statement of intention saying whether you will surrender the property, redeem it or reaffirm the debt. The deadline is 30 days after filing or the date of the meeting of creditors, whichever is earlier.16
7. Complete a debtor education course from an approved provider. Unless the provider has already notified the court, file the certificate within 60 days after the first date set for the meeting of creditors.17 18 19
8. The discharge order is generally issued 60 to 90 days after the date first set for the meeting of creditors. The federal courts say that is typically about four months after the petition is filed.1 2

What does Chapter 7 cost in court fees?

The court fees for Chapter 7 are a $245 filing fee, a $78 administrative fee and a $15 trustee surcharge, $338 in total (fee schedule effective December 1, 2023).3 4

With the court's permission, individuals may pay in installments: no more than four, with the last one due within 120 days of filing. The court may waive the fees if your income is below 150% of the poverty level and you cannot pay even in installments.1 5

Credit counseling and debtor education are paid for separately, to the agency or provider. In its guidance to them (FAQ pages updated January 15, 2025), the U.S. Trustee Program presumes a fee of $50 or less to be reasonable for each. People with household income below 150% of the poverty level are presumed to qualify for a free or reduced-fee session.20 19

What does a Chapter 7 discharge do, and what does it leave?

Student loans follow their own rule. They can be discharged only by proving undue hardship in a separate lawsuit inside the case, called an adversary proceeding.26 27

Do you need a lawyer to file Chapter 7?

Individuals can file without an attorney, which is called filing pro se. The federal courts strongly recommend getting advice from a qualified attorney, because mistakes can affect your rights.28

Court employees and bankruptcy judges are prohibited by law from giving legal advice, and a petition preparer may only enter information into forms. Businesses such as corporations, partnerships and LLCs generally cannot file without an attorney.28 29 30 31