Chapter 7 is a liquidation bankruptcy that is designed to eliminate (i.e., discharge) many kinds of debts for those who lack the ability to repay them. In most cases, the debtor may retain necessary assets such as his or her home, vehicle, personal effects, and retirement funds while eliminating other debts.
Chapter 7 can discharge most unsecured debts, including credit card debts, signature loans, medical debts, etc. However, certain debts cannot be discharged in Chapter 7. Debts that are not dischargeable in Chapter 7 include, but are not limited to:
- Federally guaranteed student loans
- Child and/or spousal support debts
- Certain federal and/or state tax debts
- Debts incurred to pay taxes that are themselves not dischargeable
- Debts for money, property or services obtained by means of fraud, false representation or wrongful conduct including embezzlement or larceny
- Debts stemming from intentional or malicious injury to person or property or from driving while intoxicated
- Criminal and/or civil fines or penalties owed to governmental entities
- Certain debts incurred shortly before filing bankruptcy
One practical limitation on the ability to file Chapter 7 is your income level. Simply stated, the courts try to reserve Chapter 7 for those whose income level is simply insufficient to allow them to repay any meaningful portion of their debts. Thus, your household income level has a great deal to do with your eligibility for Chapter 7.