Chapter 7 bankruptcy: how it works

How does Chapter 7 actually work, start to finish?

A Chapter 7 case normally begins when you file a petition with the bankruptcy court, along with statements listing your assets, income, liabilities, and every creditor and what they are owed (Bankr. D. Md. official page — Legal Overview). Filing automatically stays debt collection: while the stay is in effect, creditors generally cannot bring or continue lawsuits, garnish wages, or even make telephone calls demanding payment.

The filing creates a bankruptcy estate. Under 11 U.S.C. § 541, once the estate is created, no interests in property of the estate remain in the debtor, and the estate also picks up things like property recovered by the trustee and certain property acquired within 180 days after filing by inheritance, a property settlement, or life insurance proceeds.

A trustee then reviews what you own against the exemptions you claim. In many consumer liquidation cases there is little or no money available from the estate to pay creditors, so there are few disputes and the debtor is normally granted a discharge of most debts without objection.

• Complete an approved credit counseling course within 180 days before filing.
• File the petition, schedules, statements, and creditor list, and pay or apply regarding the filing fee.
• Attend the meeting of creditors, held 21 to 60 days after filing.
• Complete a financial management course and file the certificate.
• Receive the discharge order, then the case is closed.

What changes the answer in your own case?

Three things move a Chapter 7 case off the simple path. The first is property. If you own something a trustee can sell for creditors after your exemptions are applied, your case has assets, and the trustee's job changes from a paperwork review to a liquidation. Exemptions are not automatic — you must list property on Schedule C, and if you do not list it, the trustee may sell it and pay the proceeds to creditors (Bankr. S.D. Iowa official guidance — Instructions - Bankruptcy Forms for Individuals).

The second is income. If your debts are primarily consumer debts, the court can dismiss a Chapter 7 case if it finds granting relief would be an abuse under 11 U.S.C. § 707(b). Income above the state median means completing the means test calculation rather than an automatic bar.

The third is conduct and history. 11 U.S.C. § 727 lists the grounds for denying a discharge, including transferring or concealing property with intent to hinder creditors, failing to keep records, and a prior discharge within the period the statute sets.

What does federal law say about the discharge?

The core rule is short. Under 11 U.S.C. § 727(a), the court shall grant the debtor a discharge unless one of the listed exceptions applies. The first exception is structural — the debtor is not an individual — which is why corporations do not receive a Chapter 7 discharge. The rest describe conduct: transferring, removing, destroying, or concealing property with intent to hinder, delay, or defraud a creditor within one year before filing; concealing or failing to keep records from which your financial condition could be determined; making a false oath or presenting a false claim knowingly and fraudulently; failing to explain satisfactorily any loss of assets; refusing to obey a lawful court order or to answer a material question; and having received a prior discharge under the section within the period the statute specifies.

Read as a whole, § 727 is a rule about candour. The statute assumes the honest debtor receives the discharge, and reserves denial for people who hid something or would not answer.

• 11 U.S.C. § 727 — the discharge, and the grounds for denying it
• 11 U.S.C. § 541 — what becomes property of the bankruptcy estate
• 11 U.S.C. § 707 — dismissal for cause or for abuse in consumer cases
• 11 U.S.C. § 523 — categories of debt a discharge does not cover
• 11 U.S.C. § 109 — who may be a debtor under Chapter 7

Where do state and local rules change things?

Bankruptcy is federal. Federal courts have exclusive jurisdiction over bankruptcy cases, which means a bankruptcy case cannot be filed in a state court (Bankr. D. Md. official page — Legal Overview). The chapters, the discharge standard, and the estate rules are the same in every state.

Two things are not uniform. Exemptions — what property you can protect — depend heavily on the state you file in, and the median income figures used in the means test are published by state and household size. Both live on our state pages rather than here, because restating them generally is how people end up relying on the wrong number.

Local practice also varies. Districts publish their own filing checklists, local rules, and required forms, and some maintain a pro se help desk. Your district's own guidance controls the procedural details of your case, so it is worth reading the checklist for the court where you would actually file.

• Exemption amounts: set by state law (or by federal exemptions where a state allows the choice).
• Median income used in the means test: published by state and household size.
• Required documents, deadlines, and local forms: set by each district's local rules.

What does a routine Chapter 7 case look like on a calendar?

District flowcharts describe a fairly consistent rhythm. Credit counseling comes first, within 180 days before filing. Day 1 is the petition, creditor matrix, and the statement about your Social Security number, with the fee paid or an application filed. Within 14 days, the certificate of credit counseling, lists, schedules, and statements are filed if they did not go in with the petition (U.S. Bankr. Ct. M.D. Ala., Anatomy of a Bankruptcy Chapter 7).

Seven days before the meeting of creditors, tax returns and payment records go to the trustee. The meeting of creditors itself is held 21 to 60 days after filing, and you are under oath (Bankr. W.D. Ky. official guidance — Guide to Filing Bankruptcy without an Attorney). The statement of intention is due 30 days after filing or before the first meeting date, whichever comes first, and must be performed 30 days after that meeting.

The financial management course certificate is due 60 days after the first meeting date. The discharge order follows, and the case closes at least 14 days after the last order is entered.

What documents and information does a Chapter 7 filing involve?

The paperwork is substantial, and gathering it is usually the slowest part. District checklists ask for a list of every creditor with names and addresses, a list of everything you own with its location and current value, and the names of any co-signers or co-debtors (Bankr. N.D. Ill. official page — eSR Chapter 13 Checklist).

On the income side, expect six months of proof of income, copies of payment advices received from any employer within 60 days before the petition, six months of bank statements including accounts closed within the last year, and twelve months of retirement and pension statements. Any lawsuit pending against you, or that you might file, is also reportable.

The forms themselves include the voluntary petition, Schedules A/B through J, the statement of financial affairs, the declaration about your schedules, and the Chapter 7 statement of current monthly income (Bankr. N.D. Iowa official page — Chapter 7 Filing Requirements). Filing fees are set nationally by statute and the fee schedule.

What should you ask a lawyer before you decide?

The questions worth asking are the ones that turn on facts a form cannot capture. Courts are direct about this: bankruptcy proceedings are complex, the results have long-term consequences, and clerk's office staff are prohibited from giving legal advice or helping you complete forms (Bankr. E.D. Mich. official guidance — A Guide for Pro Se Filers).

Bring your actual numbers and your actual property list. A lawyer can tell you whether anything you own falls outside your exemptions, whether your debts are the kind § 523 excepts from discharge, and whether anything in the last few years — a transfer to a relative, a large recent purchase, a paid-off loan to a family member — creates a problem under § 727.

If you are considering reaffirming a debt to keep collateral, courts advise consulting counsel before agreeing, because reaffirmation takes away some of the effectiveness of your discharge (U.S. Bankr. Ct. M.D. Ala., Consumer Pro Se Debtors Guide).

• Is any of my property outside the exemptions available where I would file?
• Are my main debts the kind 11 U.S.C. § 523 excepts from discharge?
• Does anything I did in the past year raise an issue under 11 U.S.C. § 727?
• What happens to my house or car, and is reaffirmation sensible here?
• Would Chapter 13 fit my situation better than Chapter 7?

Frequently asked questions

Does Chapter 7 mean I lose everything I own?

No. In many consumer liquidation cases there is little or no money available from the estate to pay creditors, and nothing is sold. Exemptions determine what the trustee cannot reach, but they are not automatic: you must list property on Schedule C, and unlisted property may be sold with the proceeds paid to creditors.

Which debts survive a Chapter 7 discharge?

11 U.S.C. § 523 excepts several categories, including certain taxes and customs duties, debts for money or property obtained by false pretences or actual fraud, and debts neither listed nor scheduled in time for the creditor to act. District guidance also lists most fines, penalties, and criminal restitution, and debts for injuries caused by intoxicated driving.

What does the automatic stay stop, and what does it not?

Filing automatically stays most collection activity, so creditors generally cannot bring or continue lawsuits, garnish wages, or make collection calls. It has limits. Arizona's court guidance notes you are generally not protected from most domestic relations proceedings such as child support and alimony, or from most criminal proceedings.

Can my Chapter 7 case be dismissed?

Yes. Under 11 U.S.C. § 707(a) the court may dismiss for cause after notice and a hearing, including unreasonable delay prejudicial to creditors or nonpayment of required fees. Under § 707(b), a case filed by an individual whose debts are primarily consumer debts may be dismissed, or converted with consent, if granting relief would be an abuse.

What is a reaffirmation agreement?

It is a contract with a creditor by which you become legally obligated to pay all or part of an otherwise dischargeable debt, and it must be filed before the discharge is entered. Debtors without a lawyer must attend a hearing before a judge to determine whether the agreement is valid. Courts advise consulting counsel first.

How much does it cost to file Chapter 7?

The statutory filing fee for an individual or joint Chapter 7 case is $245 (28 U.S.C. § 1930(a)(1)(A), (f)(1)), plus a $78 administrative fee (Bankruptcy Court Miscellaneous Fee Schedule, Item 8) and a $15 trustee surcharge (Bankruptcy Court Miscellaneous Fee Schedule, Item 9). Courts may allow payment in installments, and a waiver is conditional under § 1930(f).

What happens if I filed a bankruptcy case recently?

Repeat filings limit the automatic stay. District guidance explains that if you had a prior case pending that was dismissed within the previous 12 months, the stay may operate for only 30 days; if two cases were pending and dismissed in that period, the stay does not go into effect at all unless the court orders it after a hearing.

Who is eligible to be a Chapter 7 debtor?

Under 11 U.S.C. § 109(a), only a person that resides or has a domicile, a place of business, or property in the United States may be a debtor. Section 109(b) then excludes specific entity types from Chapter 7, including railroads, domestic banks and insurance companies, and certain foreign banks and insurers.

Sources

• 11 U.S.C. § 727 — Discharge · official source
• 11 U.S.C. § 541 — Property of the estate · 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. § 523 — Exceptions to discharge · official source
• 11 U.S.C. § 109 — Who may be a debtor · official source
• 28 U.S.C. § 1930(a)(1)(A), (f)(1)
• 28 U.S.C. § 1930(a)(1)(B)
• Bankruptcy Court Miscellaneous Fee Schedule, Item 8
• Bankruptcy Court Miscellaneous Fee Schedule, Item 9
• Bankr. D. Md. official page — Legal Overview
• U.S. Bankr. Ct. M.D. Ala., Anatomy of a Bankruptcy Chapter 7
• U.S. Bankr. Ct. M.D. Ala., Consumer Pro Se Debtors Guide
• Bankr. W.D. Ky. official guidance — Guide to Filing Bankruptcy without an Attorney
• Bankr. E.D. Mich. official guidance — A Guide for Pro Se Filers
• Bankr. S.D. Iowa official guidance — Instructions - Bankruptcy Forms for Individuals
• Bankr. N.D. Iowa official page — Chapter 7 Filing Requirements
• Bankr. N.D. Ill. official page — eSR Chapter 13 Checklist
• U.S. Bankr. Ct. D. Ariz., Choosing Your Chapter: What can Bankruptcy do for you? What will it do to you?
• Bankr. S.D. Ill. official guidance — Chapter 7 Case Flowchart

Related

• Chapter 7
• Chapter 13
• Exemptions: what they protect
• Which debts get discharged
• The means test, explained
• Build your personalised roadmap