What Is Chapter 7 Bankruptcy?

A Chapter 7 Bankruptcy, often called a “liquidation” bankruptcy is for people who will never be able to pay back their debts and need an entirely fresh start from burdensome debts. A Chapter 7 discharge eliminates most unsecured debts entirely and is often the best option for people without the disposable income to make a Chapter 13 work. “Bankruptcy gives to the honest but unfortunate debtor … a new opportunity in life and a clear field for future effort.” This was said originally by the United States Supreme Court in Local Loan Co. v. Hunt (1934) 292 U.S. 234, 244.

What Debts Are Discharged in Chapter 7 #

  • Car loans (creditor will retain lien)
  • Credit Cards
  • Deficiency balances on homes, cars, boats, etc. following foreclosure or repossession
  • Medical bills
  • Mortgages (creditor will retain lien)
  • Most lawsuits

What Debts Are Not Discharged by Chapter 7 #

  • Debts for personal injuries caused by the debtor operating a vehicle while intoxicated
  • Debts incurred to pay nondischargeable taxes
  • Debts not properly listed in the schedules
  • Domestic support obligations such as spousal maintenance or child support
  • Most student loans
  • Most taxes (some older income taxes may be discharged)
  • Reaffirmed debts

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