Glossary
Chapter 7
Chapter 7 is the liquidation chapter of the federal Bankruptcy Code, used by individuals and businesses that cannot pay their existing debts. A trustee collects property of the estate, sells nonexempt assets, and pays creditors from the proceeds. Individual debtors may then receive a discharge releasing personal liability for many pre-filing debts — a discharge is not available to partnerships or corporations.
Key points
- Chapter 7 is often called "straight bankruptcy" or "liquidation" and does not involve a repayment plan.
- A trustee is appointed to collect and reduce to money the property of the estate and to investigate the debtor's financial affairs (11 U.S.C. § 704).
- Only an individual can receive a Chapter 7 discharge; a partnership or corporation cannot (11 U.S.C. § 727).
- Exempt property is kept out of creditors' reach, but exemption amounts vary by state, so check your own state page.
- A court may dismiss an individual consumer case, or convert it with the debtor's consent, if granting relief would be an abuse (11 U.S.C. § 707).
You may have run into the words "Chapter 7" on a court notice, a creditor letter, or a form someone handed you. It refers to one chapter of the federal Bankruptcy Code, and it describes a specific kind of case. Here is what the term means and what it does not.
What does Chapter 7 mean?
Chapter 7 refers to Chapter 7 of Title 11 of the United States Code — the Bankruptcy Code's liquidation chapter (Bankruptcy Administrator for the Eastern District of North Carolina, Chapter 7). Lawyers sometimes call it "straight bankruptcy." Unlike Chapter 13, it does not involve filing a plan of repayment. Instead, a trustee is appointed, sells nonexempt assets, and uses the proceeds to pay creditors (U.S. Bankr. Ct. S.D. Ala., Chapter 7). A Chapter 7 debtor may be an individual, a partnership, a corporation, or another business entity, though certain entities — railroads, most banks and insurance companies — cannot be Chapter 7 debtors at all (11 U.S.C. § 109). Individuals commonly use it to seek relief from debt; businesses use it to liquidate and terminate operations. The stated purpose is to give an honest debtor a fresh start while repaying creditors in an orderly manner from whatever property is available.
Why does the chapter matter in a bankruptcy case?
The chapter you file under sets the machinery of the case. Chapter 7 has its own rules — § 704 on trustee duties, § 707 on dismissal or conversion, § 727 on discharge — and those provisions do not carry over to other chapters, which have their own. The most visible difference is what happens to property and to income. In Chapter 7 there is no repayment plan; the estate is liquidated and closed. A discharge under § 727 releases an individual debtor from personal liability for many pre-filing debts, but the court may deny it for specified conduct, such as concealing property or making a false oath (11 U.S.C. § 727). Some debts are excepted from discharge by statute (11 U.S.C. § 523). Filing also carries a fee, and the case is administered by a trustee rather than by the debtor.
| Component | Amount | Source |
|---|---|---|
| Statutory filing fee | $245 | 28 U.S.C. § 1930(a)(1)(A), (f)(1) |
| Administrative fee | $78 | Bankruptcy Court Miscellaneous Fee Schedule, Item 8 |
| Trustee surcharge | $15 | Bankruptcy Court Miscellaneous Fee Schedule, Item 9 |
How does a Chapter 7 case work in practice?
A case begins with a petition filed in bankruptcy court, along with schedules listing assets, income, liabilities, and every creditor and what is owed. Filing automatically stays most debt collection — lawsuits, wage garnishments, even collection calls (Bankr. D. Md. official page — Legal Overview). An individual with primarily consumer debts must receive a written notice describing the chapters and their costs before filing (11 U.S.C. § 342). A trustee is then appointed to collect and reduce to money the property of the estate, investigate the debtor's financial affairs, and object to improper claims (11 U.S.C. § 704). Creditors may, in some cases, elect a different trustee at the meeting of creditors (11 U.S.C. § 702). Individual debtors must file a certificate of credit counseling and complete a financial management course before becoming eligible for a discharge (U.S. Bankr. Ct. S.D. Ala., Chapter 7).
What do people get wrong about Chapter 7?
Four misunderstandings come up constantly. First, "liquidation" does not mean everything goes: the Bankruptcy Code allows a debtor to keep certain exempt property, and in many consumer cases there is little or no money available to pay creditors at all (U.S. Bankr. Ct. S.D. Ala., Chapter 7). Second, claiming property exempt protects an interest or equity — it does not erase a valid lien. A mortgage holder may still foreclose and a car lender may still repossess after discharge if a lien was not eliminated in the case (U.S. Bankr. Ct. M.D. Ala., Consumer Pro Se Debtors Guide). Third, exemption amounts are not uniform; they turn on which list applies in your state, so see your state page rather than assuming a figure. Fourth, income above the state median does not by itself end the inquiry — it triggers a means test, and a presumption of abuse can be rebutted by showing special circumstances (Bankruptcy Administrator for the Southern District of Alabama, Chapter 7).
Frequently asked questions
- Is Chapter 7 the same as "liquidation"?
- Yes — Chapter 7 is the Bankruptcy Code's liquidation chapter, sometimes called "straight bankruptcy" (Bankruptcy Administrator for the Eastern District of North Carolina, Chapter 7). A trustee sells nonexempt property of the estate and distributes the proceeds to creditors. That said, exempt property stays out of creditors' reach, and in many individual consumer cases there is little or no property available to distribute.
- Can a business file under Chapter 7?
- A Chapter 7 debtor may be an individual, a partnership, a corporation, or another business entity, and businesses commonly use it to liquidate and terminate operations. But a discharge is available only to individual debtors, not to partnerships or corporations (U.S. Bankr. Ct. S.D. Ala., Chapter 7). Certain entities, including railroads and most banks and insurance companies, cannot be Chapter 7 debtors at all (11 U.S.C. § 109).
- Does filing Chapter 7 wipe out every debt?
- No. A discharge releases an individual from personal liability for many pre-filing debts, but the Bankruptcy Code excepts certain categories, and others are not dischargeable in particular circumstances (11 U.S.C. § 523). A discharge also does not stop a secured creditor from enforcing a valid lien that survived the case, such as a mortgage or a car loan (U.S. Bankr. Ct. M.D. Ala., Consumer Pro Se Debtors Guide).
- Can a Chapter 7 case be dismissed or moved to another chapter?
- Yes. A court may dismiss a Chapter 7 case after notice and a hearing for cause, including unreasonable delay or nonpayment of required fees. For an individual whose debts are primarily consumer debts, the court may also dismiss the case, or convert it to Chapter 11 or 13 with the debtor's consent, if it finds that granting relief would be an abuse of Chapter 7 (11 U.S.C. § 707).
Sources
- 11 U.S.C. § 109 — Who may be a debtor · official source
- 11 U.S.C. § 342 — Notice · official source
- 11 U.S.C. § 523 — Exceptions to discharge · official source
- 11 U.S.C. § 702 — Election of trustee
- 11 U.S.C. § 704 — Duties of trustee · official source
- 11 U.S.C. § 707 — Dismissal of a case or conversion to a case under chapter 11 or 13 · official source
- 11 U.S.C. § 727 — Discharge · official source
- 28 U.S.C. § 1930(a)(1)(A), (f)(1) · official source
- Bankruptcy Court Miscellaneous Fee Schedule, Item 8
- Bankruptcy Court Miscellaneous Fee Schedule, Item 9
- Bankruptcy Administrator for the Eastern District of North Carolina, Chapter 7
- Bankruptcy Administrator for the Southern District of Alabama, Chapter 7
- U.S. Bankr. Ct. S.D. Ala., Chapter 7
- U.S. Bankr. Ct. M.D. Ala., Consumer Pro Se Debtors Guide
- Bankr. D. Md. official page — Legal Overview
By Antonio G. Jimenez, Esq. · Florida Bar No. 21022
Sources verified July 28, 2026 · How we verify
Every figure on this page is drawn from a primary legal source and checked against our canonical legal database before publication. Bankruptcy.law is not a law firm and does not provide legal advice.