Chapter 7 bankruptcy is the most familiar type of consumer bankruptcy for many people. Sometimes referred to as “liquidation” bankruptcy, Chapter 7 allows borrowers to eliminate some or all of their debts and start over with a fresh slate.

Faster debt relief brings pros and cons

As with any method of dealing with overwhelming debt, there are benefits and drawbacks to Chapter 7 bankruptcy. For instance, filing for Chapter 7 is a relatively short process, which means that borrowers who choose this route can eliminate their debts quickly – often within just a few months. However, filing for Chapter 7 can also cause a person’s credit score to drop substantially. After a borrower’s debts have been discharged, he or she can begin rebuilding credit immediately, but the process will take some patience and persistence.

Dischargeable vs. non-dischargeable debt

Another thing to consider when weighing the options for getting out of debt is not all debts are eligible for discharge in Chapter 7. This means that some borrowers may have debts remaining even after going through the bankruptcy process.

However, many of the most common types of consumer debts can be eliminated by filing for Chapter 7 bankruptcy. These include most “unsecured” debts, or those that are not backed by property. For example, overdue credit card balances and medical bills can generally be discharged during Chapter 7 bankruptcy.

In contrast, secured debts such as a home mortgage or car loan cannot usually be discharged. Other types of debt that may remain after Chapter 7 include past-due child support payments, certain tax debts and most student loans. People whose debts are largely non-dischargeable should talk with a bankruptcy lawyer to find out about the other debt relief options that may be available, such as Chapter 13 bankruptcy.

Exempt property and liquidation of assets

In theory, people who file for Chapter 7 bankruptcy can be required to “liquidate” certain assets, or give them up in exchange for having their debts forgiven. However, because many types of property are considered “exempt,” it is often possible to go through Chapter 7 bankruptcy without losing any property at all.

Certain exemptions are provided for in the federal bankruptcy code, and others are defined at the state level. Typically, the person filing for bankruptcy gets to choose which set of exemptions to apply, and each has its pros and cons for different situations. Thus, when considering Chapter 7 bankruptcy in Massachusetts, it is a good idea to talk things over with a local bankruptcy lawyer to learn about the different options and get help choosing the best route under the circumstances.


-On behalf of David Nickless