Chapter 7:

This is the program most people think of when they think of bankruptcy.

A Chapter 7 is sometimes also referred to as a "full", or "straight" bankruptcy.

For those who are eligible, you can discharge many kinds of bills in a Chapter 7: credit cards, medical bills, personal loans, etc. A Chapter 7 usually offers no help with the following kinds of bills: car loans or leases, most kinds of tax debts, child support obligations, or home loan problems. If you have a car loan or lease, you can keep your car but you must continue making your regular monthly payment. If you have a home with a mortgage, you can keep your home but must continue making your regular monthly mortgage payment. If you are behind on your car payments or mortgage payments, you must bring the loan current or you will lose your car or home and a Chapter 7 will not help you with the problem.

The most important advantage to a Chapter 7 is that it makes it possible to get rid of a lot of debt relatively quickly. But there are important cautions and restrictions on the program.

First, not everyone is eligible for a Chapter 7. If you have enough income to pay back some of your bills, you will not be permitted to file a Chapter 7. Secondly, as already discussed above, there are certain kinds of debts which won't be discharged in a Chapter 7. The information on this page is, of course, not exhaustive, and it is essential that you review your debts with an attorney to find out if any will be excluded from a Chapter 7 discharge. The most frequent problems arise with taxes, credit charges and other borrowing in the months preceding a bankruptcy, and fraud allegations.

Another important caution about Chapter 7 is that certain assets can be seized and sold by the court for the benefit of creditors. If you do not own a home, have no valuables or investments, and have a car loan or an old car, this is probably not a concern, but if you have important assets you must consult with an attorney and find out whether these will be at risk in a Chapter 7 bankruptcy.

Many of the disadvantages described here are not present in the other basic bankruptcy program available for most people, a Chapter 13. The typical Chapter 7 filer has few assets, and has fallen on hard times due to some speficic event such as an illness or job layoff.