What is the main outcome of Chapter 7 bankruptcy?

The main outcome of Chapter 7 bankruptcy is liquidation. In a Chapter 7 bankruptcy, the debtor’s non-exempt assets are sold off by a bankruptcy trustee to pay creditors. The process allows individuals or businesses to eliminate most of their unsecured debts and have a fresh financial start.

When filing for Chapter 7, individuals must pass a means test to qualify, which evaluates their income against the median income for their state. Once the bankruptcy is declared, the court issues an automatic stay that halts most collection activities against the debtor, providing immediate relief.

This form of bankruptcy primarily addresses the immediate need to alleviate overwhelming debt rather than restructuring it. Therefore, while other chapters within bankruptcy law focus on repayment plans and debt reorganization—like Chapter 13, which allows for a repayment plan over time—Chapter 7 distinctly emphasizes the liquidation process to settle debts.