Chapter 7 Bankruptcy Examples: Debts, Exemptions, and Means Test

Chapter 7 bankruptcy examples fall into a few clear buckets: debts that get erased (credit cards, medical bills, older tax debts, personal loans), debts that survive (child support, most student loans, recent taxes, court fines), property you keep because exemptions protect it (your car up to a set equity limit, household goods, retirement accounts), and property a trustee can sell (a second home, a large brokerage account, a valuable collection). Most cases finish in about four months, the federal filing fee is $338, and roughly nine out of ten filers lose no property at all because everything they own fits inside the exemption limits.¹

Debts That Get Wiped Out

The discharge order is the whole point of filing. Once it’s entered, you owe nothing on the covered debts and collectors are permanently barred from contacting you about them. The categories that vanish for most filers:

Credit card balances. Every existing balance is eliminated. One narrow exception: charges for luxury goods over $500 made within 90 days of filing are presumed non-dischargeable.²
Medical bills. Hospital stays, surgeries, prescriptions, ambulance charges — the full amount goes, regardless of size.
Personal loans. Unsecured loans from banks, credit unions, online lenders, and payday lenders.
Past-due utility bills. Old electric, gas, water, and phone balances are discharged. Your utility can require a new deposit going forward but can’t refuse service.
Deficiency balances. If a car was repossessed or a home foreclosed and the sale didn’t cover the loan, the leftover balance is dischargeable.

Older Tax Debts Sometimes Qualify

Income tax debt is dischargeable only if it satisfies three timing tests, often called the 3-2-240 rule. The return had to be due at least three years before filing (extensions count). You had to actually file the return at least two years before filing. And the IRS must have assessed the tax at least 240 days before filing.² Miss any one hurdle and the tax survives. Tax from a fraudulent return is never dischargeable.

Debts That Survive Bankruptcy

Federal law carves several categories out of the discharge. You still owe these after the case closes:

Child support and alimony. Domestic support obligations cannot be discharged under any circumstances.
Student loans. Presumptively non-dischargeable. You can try to challenge that in a separate lawsuit inside the bankruptcy by proving “undue hardship,” but most courts apply the Brunner test, which requires showing you can’t maintain a minimal standard of living while repaying, that your situation is likely to persist, and that you’ve made good-faith efforts to repay. The standard is difficult to meet.²
Recent tax debts. Anything that fails the 3-2-240 timing test.
Debts from fraud or willful harm. Running up credit cards with no intent to pay, getting a loan through false statements, or causing intentional injury to a person or property.
Government fines and penalties. Traffic tickets, criminal restitution, and regulatory fines.
Debts you forgot to list. If a creditor isn’t on your schedules and had no other notice of the case, the debt may survive.²

Property You Keep: Exemption Examples

Exemptions are why most filers walk away from Chapter 7 with everything they own. Property that fits inside an exemption stays yours. Every state has its own set of exemptions, and roughly 20 states plus the District of Columbia let you choose between the state list and the federal list in the Bankruptcy Code. You cannot mix items from both lists.

The federal exemption amounts are adjusted every three years. For cases filed between April 1, 2025, and March 31, 2028:³

Home equity in your primary residence: up to $31,575.
Equity in one motor vehicle: up to $5,025.
Household goods, furniture, appliances, and clothing: up to $800 per item, $16,850 total.
Personal jewelry: up to $2,125.
Tools and professional books needed for work: up to $3,175.
Wildcard: $1,675 to apply to anything, plus up to $15,800 of unused homestead exemption redirected to other property.

The wildcard is the one to notice. If you rent and don’t need the homestead exemption, you can stack the full $15,800 of unused homestead on the $1,675 base wildcard, giving you $17,475 to protect anything you pick — a bank balance, a tax refund coming in the mail, equity in a boat, a coin collection.³

Retirement Accounts

Employer plans (401(k), 403(b), 457, traditional pensions) sit outside the bankruptcy estate entirely, with no dollar cap. Their federal anti-alienation rules keep them out before exemptions even come into play. Traditional and Roth IRAs are exempt rather than excluded, with a cap of $1,711,975 as of April 2025. SEP-IRAs, SIMPLE IRAs, and rollover IRAs funded from an employer plan aren’t subject to that cap.

Wages Earned After Filing

Your bankruptcy estate is a snapshot of what you owned on the filing date. Wages you earn after filing are yours.⁴ One exception: property you receive within 180 days of filing through an inheritance, divorce settlement, or life insurance payout does get pulled into the estate.

Property the Trustee Can Sell

Anything outside an exemption is fair game. Common non-exempt examples:

A second home or vacation property. The homestead exemption only applies to your primary residence. A lake house, timeshare, or rental property has no exemption cover.
Vehicle equity above the cap. Say your car is worth $12,000 and you owe $4,000. You have $8,000 in equity, but only $5,025 is protected under the federal system. The trustee can sell the car, pay off the loan, hand you $5,025, and give the remainder to creditors.
Brokerage and crypto accounts. Stocks, ETFs, and cryptocurrency held outside a retirement plan get no special protection. They’re non-exempt unless the wildcard reaches them.
Valuable collections and high-end goods. Art, antiques, coin collections, and premium electronics beyond the household goods limit can be liquidated.
Large cash balances. A checking or savings account well above what the wildcard covers is partly or fully surrendered.

In practice, most Chapter 7 trustees find nothing worth selling. When everything fits inside exemption limits, the trustee files a “no-asset report,” creditors receive nothing from the estate, and the case moves to discharge.¹

Secured Debts: Three Choices, Real Numbers

A mortgage or car loan works differently from unsecured debt. Chapter 7 wipes out your personal liability on the loan, but the lien on the property stays. Stop paying and the lender can still foreclose or repossess. For each secured debt you pick one of three paths:

Reaffirmation. You sign an agreement that basically restarts the loan as though the bankruptcy never happened. You keep the property, keep making payments, and remain personally liable if you later default. The court has to approve it.⁵
Redemption. You pay the lender the current market value of the property in one lump sum, no matter what the loan balance is. Example: car worth $5,000, loan balance $9,000. You pay $5,000 and own it free and clear. The obvious problem is coming up with the cash right after a bankruptcy filing.
Surrender. You hand the property back. The lender sells it, and any shortfall is wiped out by the discharge.

You choose separately for each debt. A common pattern: reaffirm the mortgage to stay in the house, surrender a car with deep negative equity, redeem a second car where the loan far exceeds the value.

Transfers the Trustee Can Reverse

If you gave property away or paid a favored creditor before filing, the trustee can undo those transactions.

Preferential payments are transfers to a creditor within 90 days before filing that gave that creditor more than they’d get through the bankruptcy. Paying your brother-in-law the full $5,000 you owed him two months before filing while your credit card companies get nothing is a textbook preference; the trustee can claw the $5,000 back. For transfers to insiders (family, business partners, corporate officers), the window stretches to one year. Defenses exist for ordinary-course-of-business payments and for exchanges where the creditor gave new value.

Fraudulent transfers cover property you gave away or sold for less than fair value within two years before filing. Transferring a car title to a friend for $1 is the classic example. The trustee doesn’t have to prove you meant to defraud anyone; getting less than reasonably equivalent value while insolvent is enough.

Who Qualifies: The Means Test

Chapter 7 has an income screen called the means test, filled out on Official Form 122A.⁶ It runs in two stages.

Stage one compares your current monthly income (the six-month average of gross income before filing) to the median for a household your size in your state. Social Security benefits are excluded from the calculation.⁷ Below the median, you qualify automatically.

Above the median, stage two subtracts standardized living expenses (from IRS national and local standards, not what you actually spend) plus payments on secured debts and priority obligations like child support arrears.⁸ The result is your monthly disposable income, multiplied by 60. If that total is under $10,275, or under 25 percent of your unsecured debt (whichever is greater), you can file. If it reaches $17,150 or more, the court presumes abuse and steers you to Chapter 13 unless you show special circumstances like a serious medical condition.⁹

Timeline and Costs

Before filing, you complete a credit counseling session with a nonprofit approved by the U.S. Trustee Program, within the 180 days before your filing date.¹⁰

Filing the petition triggers the automatic stay, a federal injunction that stops lawsuits, wage garnishments, collector calls, and foreclosures the moment the case hits the docket.¹¹ Between 21 and 40 days later you attend the meeting of creditors. The trustee runs it, asks about your assets and recent transfers, and confirms the schedules are accurate.¹² For most filers it takes under ten minutes. Then you complete a debtor education course.¹³ The discharge order typically arrives about 60 days after the first date set for the meeting, roughly four months after filing.¹⁴

The federal court filing fee is $338 ($245 case filing fee, $78 administrative fee, $15 trustee surcharge). Courts can approve installment payments and, for filers under 150 percent of the federal poverty guidelines, waive the fee entirely. Attorney fees for a straightforward Chapter 7 usually run $1,000 to $3,000 depending on complexity and local rates. The two required courses cost roughly $10 to $50 each.

How Long Before You Can File Again, and How Long It Stays on Your Credit

You can’t receive a second Chapter 7 discharge if you already got one in a case filed within the previous eight years, measured from filing date to filing date.¹⁵

Chapter 7 stays on your credit report for up to 10 years from the filing date.¹⁶ The score impact is steepest early and fades as you rebuild. Secured credit card offers commonly arrive within months of discharge, and an FHA mortgage is often within reach two years out if your other credit factors line up. Discharged debts can never be revived; a collector who tries to pursue one is violating the discharge injunction.

1
United States Courts. Chapter 7 Bankruptcy Basics
2
Office of the Law Revision Counsel. 11 USC 523 – Exceptions to Discharge
3
Office of the Law Revision Counsel. 11 US Code 522 – Exemptions
4
Office of the Law Revision Counsel. 11 US Code 541 – Property of the Estate
5
United States Courts. Instructions for Form 2400A Reaffirmation Documents
6
United States Department of Justice. Means Testing
7
Office of the Law Revision Counsel. 11 US Code 101 – Definitions
8
Internal Revenue Service. Collection Financial Standards
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Office of the Law Revision Counsel. 11 USC 707 – Dismissal of Case or Conversion to Case Under Chapter 11 or 13
10
Office of the Law Revision Counsel. 11 USC 109 – Who May Be a Debtor
11
Office of the Law Revision Counsel. 11 US Code 362 – Automatic Stay
12
United States Department of Justice. Section 341 Meeting of Creditors
13
United States Department of Justice. Credit Counseling and Debtor Education Information
14
United States Courts. Discharge in Bankruptcy – Bankruptcy Basics
15
Office of the Law Revision Counsel. 11 USC 727 – Discharge
16
Consumer Financial Protection Bureau. How Long Does a Bankruptcy Appear on Credit Reports?