Chapter 7 bankruptcy wipes out most unsecured consumer debt: credit card balances, medical bills, personal loans, payday loans, past-due rent and utilities, old cellphone contracts, and deficiency balances left over from a repossession or foreclosure. The debts forgiven under Chapter 7 bankruptcy are, in short, the everyday obligations a creditor could only enforce by suing you for money. The discharge order usually arrives about four months after you file and permanently bars those creditors from ever trying to collect again.1United States Courts. Discharge in Bankruptcy – Bankruptcy Basics Several categories survive the process, though, and knowing which is which is the whole point of understanding what Chapter 7 can do for you.
What Chapter 7 Forgives
Credit card debt is the classic Chapter 7 discharge. The full balance goes, including the interest and late fees that piled up on top of it. Medical debt is fully dischargeable too, regardless of how large the bill is, which matters because medical expenses are one of the leading reasons people file in the first place.
Personal loans from banks, credit unions, and payday lenders are dischargeable. So are past-due utility bills, unpaid cellphone contracts, and rent still owed on a lease you walked away from. If a vehicle was repossessed or a home was foreclosed on before you filed, the deficiency balance — the gap between what you owed and what the lender recovered when it sold the property — is generally wiped out along with your other unsecured debts.
Civil court judgments can also be eliminated when the underlying debt is a general unsecured obligation, such as an unpaid bill or a broken contract. A judgment loses its separate character in bankruptcy; what matters is the nature of the debt it rests on. If that debt would be dischargeable, so is the judgment.
What Chapter 7 Does Not Forgive
Federal law lists specific debts that survive a Chapter 7 discharge no matter how dire your finances are.2Office of the Law Revision Counsel. 11 US Code 523 – Exceptions to Discharge The categories you are most likely to run into:
Child support and alimony. All domestic support obligations are completely off limits, including court-ordered child support, spousal support, and related attorney fees awarded in divorce proceedings. No chapter of bankruptcy touches them.
Debts obtained through fraud. If you got money, property, or credit by misrepresentation, such as lying about your income on a loan application, the creditor can ask the court to block discharge of that specific debt.
Debts from willful and malicious injury. If you deliberately harmed another person or their property, the resulting debt survives. Ordinary negligence is not enough; the harm must have been intentional.
Death or injury from drunk driving. A debt arising from death or personal injury you caused while driving under the influence is not dischargeable. Property damage from the same incident may be dischargeable unless a creditor successfully challenges it.
Government fines, penalties, and criminal restitution. These are generally non-dischargeable.
Post-filing HOA and condo fees. Assessments that come due after your filing date stay your responsibility for as long as you hold title to the property, even if you have moved out or told the court you intend to surrender the home.
Debts you forgot to list. A creditor you leave off your paperwork may not be bound by the discharge, which is why careful scheduling of every debt matters.1United States Courts. Discharge in Bankruptcy – Bankruptcy Basics
When Tax Debts Can Be Forgiven
Taxes sit in the middle. Some income tax debt is dischargeable, but only if it satisfies every part of what practitioners call the 3-2-240 rule. All three timing tests have to be met at once; failing any one of them keeps the entire tax debt alive.
The three-year rule requires that the return for the tax in question was due, including extensions, more than three years before you filed for bankruptcy.3Internal Revenue Service. Declaring Bankruptcy The two-year rule requires that you actually filed that return at least two years before your bankruptcy petition date; a substitute return the IRS prepared on your behalf does not count. The 240-day rule requires that the IRS assessed the tax at least 240 days before you filed, or has not assessed it at all. Actions like submitting an offer in compromise or filing a prior bankruptcy can pause and extend the 240-day clock.
Even when the timing works, the debt is still non-dischargeable if you filed a fraudulent return or willfully tried to evade the tax. And there is a practical catch worth understanding: if the IRS recorded a tax lien against your property before you filed, the lien survives the discharge. Your personal liability goes away, but the IRS can still collect from the specific property the lien attached to after your case closes.2Office of the Law Revision Counsel. 11 US Code 523 – Exceptions to Discharge
Student Loans and the Undue Hardship Standard
Federal and private student loans are not automatically discharged in Chapter 7. To eliminate them, you have to file a separate lawsuit inside your bankruptcy case, called an adversary proceeding, and prove that repayment would impose an undue hardship on you and your dependents.2Office of the Law Revision Counsel. 11 US Code 523 – Exceptions to Discharge
Most federal courts measure undue hardship using the Brunner test, which asks you to show three things: that you cannot maintain a minimal standard of living while making payments, that your situation is likely to persist for a significant portion of the repayment period, and that you have made good-faith efforts to repay. The First and Eighth Circuits use a broader totality-of-the-circumstances approach that looks at your overall financial picture without the three-prong structure.
In late 2022, the Department of Justice issued guidance directing federal attorneys to apply a more structured and borrower-friendly framework in these cases. The guidance applies under both the Brunner test and the totality test. Good faith can now be shown through a wider range of actions, and the analysis uses IRS expense standards to determine whether a borrower can realistically afford payments.4Federal Student Aid. Undue Hardship Discharge of Title IV Loans in Bankruptcy Adversary Proceedings That shift has made student loan discharge more achievable than it was a decade ago, but it still requires a separate legal action with its own costs and evidence. Simply filing Chapter 7 does not trigger the analysis; you have to ask the court and prove your case.
Secured Debts: Your House, Car, and Other Collateral
Secured debts work differently, and this is where readers most often get surprised. A Chapter 7 discharge can eliminate your personal obligation to pay a mortgage or car loan, but it does not remove the lender’s lien on the property. If you stop paying, the lender can still foreclose or repossess after your bankruptcy ends. When you file, you submit a Statement of Intention telling the court what you plan to do with each piece of collateral.5United States Courts. Official Form 108 – Statement of Intention for Individuals Filing Under Chapter 7
You generally have three choices. You can surrender the property, in which case any deficiency after the lender sells it becomes unsecured debt that gets discharged with everything else. You can reaffirm the debt, signing a new agreement to keep paying as though the bankruptcy never happened; the debt is carved out of your discharge, you remain fully liable, and if you later fall behind the lender can repossess and sue you for any deficiency.6Office of the Law Revision Counsel. 11 USC 524 – Effect of Discharge A reaffirmation signed without a lawyer must be approved by the court as not an undue hardship, and you can cancel it until the later of 60 days after it is filed or the date your discharge is entered.
The third option, redemption, lets you pay the lender a single lump sum equal to the current value of the property, not the full loan balance, and keep the item free and clear. Redemption only applies to tangible personal property used for personal or household purposes, so it works for cars and furniture but not for real estate. The hurdle is coming up with the cash, though some specialty lenders offer redemption loans for this purpose.7Office of the Law Revision Counsel. 11 USC 722 – Redemption
The underlying rule for secured debts is worth repeating: Chapter 7 can release you from the promise to pay, but it does not detach the lien from the collateral. Keeping the property almost always means continuing to pay for it in some form.