Can Chapter 7 bankruptcy get rid of all of your debt at once?

On Behalf of | May 10, 2024 | Chapter 7 Bankruptcy |

Bankruptcy can be a smart way to get a fresh financial start. However, one thing some people wonder is whether it is possible for the process to get rid of all of your debt at once.

In some cases, this can happen with Chapter 7 bankruptcy, depending on the type of debt in question. It is important to understand the limitations of Chapter 7 and what types of debt it can eliminate.

Debts that Chapter 7 can eliminate

Chapter 7 bankruptcy can discharge many types of unsecured debts, including credit card debt, medical bills, personal loans and certain types of loans. This means that once the bankruptcy process is complete, the debtor is no longer legally obligated to repay those debts. In other words, if all of your debt falls into these categories, the process could get rid of all of these obligations.

Exempt property

The goal of Chapter 7 bankruptcy is to offer relief to individuals who are unable to repay their debts. Unlike Chapter 13 bankruptcy, which involves a repayment plan, Chapter 7 typically involves the liquidation of assets to pay off creditors.

Individuals can typically keep certain property exempt. These exemptions vary by state but often include necessities such as a primary residence, vehicle and personal belongings. A bankruptcy trustee appointed by the court oversees the process.

Debts that Chapter 7 might not eliminate

While Chapter 7 bankruptcy can provide relief from many types of debts, there are some exceptions. Certain debts, such as student loans, child support, alimony and most tax debts, are generally not dischargeable in bankruptcy. Additionally, debts arising from fraudulent activity or intentional wrongdoing are likely to remain.

The means test

To qualify for Chapter 7 bankruptcy, individuals must pass a means test. It assesses their income and expenses to determine if they have enough disposable income to repay their debts. If their household income falls below the state median or they can show they have insufficient income to repay their debts, they may be eligible for Chapter 7 relief.

Overall, Chapter 7 bankruptcy can provide significant relief from debts. However, not all debts are dischargeable, and you may face the sale of some of your assets. Understanding this can help you better navigate the process.


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