Chapter 7 is a type of bankruptcy filing that allows an individual to liquidate enough assets to repay their debts and to then be free and clear of debt obligations.
This can help get a credit rating back on track sooner than another type of filing such as Chapter 13. Chapter 7 is for people with incomes below their state’s median income. By liquidating enough assets to pay off creditors, a debtor can use Chapter 7 to take care of all debts at once, or to have some of the debts forgiven if the debtor does not have adequate assets for liquidation.
After receiving the court’s approval, the debtor will be free of all debt obligations and have a clean slate. The exception to this is that Chapter 7 doesn’t provide settlement for long-term debts such as home mortgages. If the debtor cannot pay this obligation, he must give up the property. A debtor who wants to restructure financing on long-term payments for major assets should consider Chapter 13 instead.
Chapter 7 is the quickest and least expensive kind of bankruptcy filing, but people must pass an income test that places them below the median income for their state of residence. You also cannot have filed for it already in the last 8 years.