What is Chapter 7 bankruptcy?

What does Chapter 7 involve?

A trustee reviews the financial disclosures and administers property of the bankruptcy estate. Nonexempt property may be sold to pay creditors. A discharge can release an individual from personal liability for qualifying debts, but filing a petition does not guarantee a discharge or decide the treatment of every debt.

The means test examines income and allowable expenses in certain cases involving primarily consumer debts. It is only part of the analysis. Previous bankruptcies, required counseling, complete disclosures and other requirements can matter even when income is below the relevant median. Read the eligibility and means-test guide before relying on an estimate.

The broad sequence

1. Review debts, property, income, earlier cases and alternatives before deciding whether to file.
2. Complete required prefiling credit counseling from an approved provider, unless a legal exception applies.
3. Prepare accurate court filings and provide the required financial records.
4. Cooperate with the trustee and attend the meeting of creditors.
5. Complete the separate debtor-education requirement, subject to limited exceptions, and address any remaining case requirements or disputes.

Deadlines and required documents depend on the case. The U.S. Trustee Program explains counseling and debtor education; completing a course alone does not approve a filing.

New Mexico exemptions: protection depends on the facts

An exemption is a legal protection for specified property or an interest in property. An exemption claim is different from an asset's market value and from the amount owed to a secured lender. Review ownership, equity, residence history and the exemption rules that apply before assuming property is protected.

New Mexico's 2023 exemption legislation changed several property protections and established periodic adjustments to specified dollar amounts beginning in 2025. This page does not reproduce those historical amounts as today's limits. An attorney should check the applicable law and current amounts for the proposed filing date.

Make a complete list of property, including shared interests and property you think has little value. Ask which exemptions could apply and whether any equity remains at risk. Moving or giving away property is not a substitute for that review. The home, equity and foreclosure guide explains why an exemption does not remove a mortgage or guarantee home retention.

Can I keep a vehicle? Separate the property from the loan

A vehicle question usually has several parts: who owns it, what it is worth, whether an exemption applies, whether there is a lien, and whether payments and other loan obligations can be met. A favorable means-test result answers none of those questions.

A secured debt is tied to collateral, such as a vehicle or home. An unsecured debt does not have that collateral interest. Some unsecured debts can still survive a discharge. Conversely, releasing personal liability on a secured debt does not necessarily remove the lender's lien.

Reaffirmation

Reaffirmation is an agreement to remain personally liable for an otherwise dischargeable debt. It has formal requirements and must be addressed before discharge. If you later default, personal liability under a valid agreement can matter as well as the lender's rights in the collateral. Ask about affordability, alternatives and the consequences of signing before agreeing to reaffirm.

Redemption

Under 11 U.S.C. § 722, an individual may redeem qualifying personal or household property from a lien securing a dischargeable consumer debt when the property is exempt or abandoned by the trustee. Redemption requires payment of the allowed secured claim in full at redemption. It is not an installment plan or a right to keep every vehicle; eligibility, valuation, funding and procedure need review.

Discuss the loan agreement, payment history, insurance, estimated value and any repossession notice with an attorney. Bankruptcy is not a promise that an already repossessed vehicle will be returned.

Lawsuits, judgments and the automatic stay

A bankruptcy filing generally creates an automatic stay that stops many collection actions. While an applicable stay remains in effect, collection lawsuits, wage garnishments and calls demanding payment of covered debts generally cannot continue. Exceptions apply, earlier cases can limit protection, and a creditor may ask the court to lift the stay.

A stay and a discharge do different jobs. The stay can pause an action; a discharge addresses personal liability for qualifying debts. A judgment, lien or disputed fraud claim may require additional analysis. Do not assume that a lawsuit or judgment disappears because a case is filed.

If money is being taken or property is at risk

• Wage garnishment: identify the creditor, court, payroll dates and type of debt. Support-related collection and other exceptions require separate review.
• Bank levy or account restraint: record the notice date, the source of funds and whether money is frozen or has already been transferred. Filing does not itself promise release or repayment of funds.
• Creditor contact: keep dated letters and a simple call log. Give the attorney the creditor's identity and any existing case information rather than assuming every communication violates a stay.
• Repossession or foreclosure: provide the exact scheduled date and current stage. A temporary pause does not solve missed payments or guarantee that property can be kept.

Contacting the office, booking a consultation or using a calculator does not file bankruptcy, create a stay or extend a deadline. Confirm whether an attorney can assess the matter in time and has agreed to act. See the U.S. Courts' Chapter 7 overview for the stay's general scope.

Bankruptcy after divorce

Bring the divorce decree, settlement, support orders and information about jointly owed debts to the review. Support obligations and certain other debts arising from divorce can survive Chapter 7. A promise to a former spouse and the underlying obligation to a lender may need different analysis. Do not assume a divorce allocation releases a borrower from a creditor's claim or that bankruptcy resolves the family-court order.

Identify property transfers and unresolved ownership issues as well as debts. The discharge guide explains the distinction between a general discharge and the treatment of a particular obligation.

Chapter 7 involving business debt

Explain whether a debt belongs to you, a sole proprietorship or a separate company, and whether you signed a personal guarantee. The distinction between primarily consumer and primarily business debts can affect the means-test analysis, but it does not remove other filing requirements or property risks.

Chapter 7 is a liquidation process, not a plan to reorganize an operating business. Corporations and partnerships do not receive a Chapter 7 discharge. An individual's liability, ownership interest and business assets need their own review. Bring business loan and guarantee documents, tax records, ownership information and a list of business assets; this site does not decide whether an entity or an individual should file.

What happens at the meeting of creditors?

The meeting of creditors, often called the 341 meeting, is conducted by a trustee rather than a judge. You answer questions under oath about the filings and your financial circumstances. Creditors may also ask questions. Attendance is required; it is not the same as receiving a discharge.

Follow the meeting notice and trustee's instructions. The U.S. Trustee Program's meeting guidance describes virtual attendance and secure advance delivery of identification and financial documents. Confirm the format, access details, deadlines and required records in your own case. Do not send identity documents or full account numbers through this site's contact form.

Review your filed information with your attorney before the meeting, identify mistakes promptly, and say when you do not know an answer. Do not guess at balances or ownership details.

Prepare for a conversation

• What information is needed to review my situation?
• Which debts could remain and which property could be at risk?
• What alternatives should we discuss?
• What costs, deadlines and responsibilities should I understand?

Use the consultation checklist and records guide. For deeper reading, compare Chapter 7 and Chapter 13, review medical bills, credit cards and discharge exceptions, or plan for life after discharge.