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Chapter 7 Discharge Overview

Chapter 7 bankruptcy -- sometimes called "liquidation" or "straight bankruptcy" -- provides the fastest path to a discharge. Most Chapter 7 cases are "no-asset" cases, meaning the trustee finds no nonexempt property to liquidate. In these cases, the entire process from filing to discharge takes roughly 3 to 4 months.

The Chapter 7 discharge eliminates your personal liability for most unsecured debts. Once the discharge order enters, creditors are permanently barred from collecting those debts under the Section 524 discharge injunction. The speed and breadth of the Chapter 7 discharge make it the most common form of bankruptcy relief -- approximately 70% of all consumer bankruptcy cases are filed under Chapter 7.

The Chapter 7 Timeline

Here is the typical sequence of events from filing to discharge:

What Debts Are Eliminated

The Chapter 7 discharge eliminates your personal obligation to pay most unsecured debts that existed on the date you filed. This includes:

• Credit card debt -- all balances, including store cards, gas cards, and rewards cards
• Medical bills -- hospital, doctor, dental, laboratory, ambulance, and collection agency balances
• Personal loans -- unsecured bank loans, online lending, payday loans, and cash advances
• Utility arrearages -- past-due electric, gas, water, phone, and internet bills
• Lease obligations -- remaining rent on broken apartment leases or early vehicle lease terminations
• Deficiency balances -- the remaining amount owed after repossession or foreclosure sale
• Civil judgments -- money judgments from lawsuits (unless based on fraud, willful injury, or DUI)
• Business debts -- debts from a failed business for which you are personally liable (sole proprietorship, personal guarantees)
• Old bounced checks -- nonsufficient funds charges and related fees

What Debts Survive Chapter 7

Certain debts cannot be discharged in Chapter 7. The full list is in 11 U.S.C. Section 523(a), but the most common exceptions are:

• Student loans (unless you prove "undue hardship" in a separate adversary proceeding)
• Tax debts less than 3 years old (the "3-year rule" has additional conditions)
• Child support and alimony (domestic support obligations)
• Debts obtained through fraud, false pretenses, or false financial statements
• DUI injury or death judgments
• Criminal fines, penalties, and restitution
• Debts from willful and malicious injury to another person or property
• Government fines and penalties
• Debts not listed on your bankruptcy schedules (if the creditor had no notice of the case)

Objections to Discharge

In some cases, a creditor, the trustee, or the U.S. Trustee may object to your discharge. There are two types of objections:

Objection to the Entire Discharge -- Section 727(a)

Under Section 727(a), the court can deny your entire discharge (not just individual debts) if you:

• Transferred, concealed, or destroyed property with intent to defraud within one year before filing
• Failed to keep adequate financial records
• Made false statements or committed perjury in connection with the case
• Failed to explain a loss of assets
• Refused to obey a lawful court order or to testify (invoking the Fifth Amendment after being granted immunity)
• Received a discharge in a prior case filed within the 8-year window

Objection to Dischargeability of a Specific Debt -- Section 523(a)

A creditor can file an adversary proceeding arguing that a specific debt falls within one of the Section 523(a) exceptions. For example, a creditor might argue that a particular debt was incurred through fraud. The deadline for filing these complaints is 60 days after the first date set for the 341 meeting.

The Debtor Education Requirement

Before the court will enter your Chapter 7 discharge, you must complete an approved debtor education course (also called a "financial management" course). This is separate from the pre-filing credit counseling requirement. The course covers budgeting, money management, and the wise use of credit.

The course typically takes about 2 hours and can be completed online for approximately $10 to $50. After completing the course, you must file a certificate (Official Form 423) with the court. If you do not file this certificate, the court will not enter the discharge and may close the case without a discharge.

After the Chapter 7 Discharge

Once the discharge enters, your obligations are over for discharged debts. Here is what to expect:

• The bankruptcy will appear on your credit report for 10 years from the filing date.
• Your credit score will drop initially but typically begins recovering within 12 to 18 months.
• You can apply for a secured credit card immediately to begin rebuilding.
• Most Chapter 7 filers qualify for an FHA mortgage 2 years after discharge, and a conventional mortgage 4 years after.
• If a creditor attempts to collect a discharged debt, file a motion for contempt in the bankruptcy court.

For a complete guide to rebuilding, see Life After Bankruptcy Discharge.

Chapter 7 vs. Chapter 13 Discharge

The key differences between the two discharge types:

Learn more: Chapter 13 Discharge: Completing Your Plan