What Is Chapter 7 Bankruptcy?

October 24, 2025

Contact the Baltimore Chapter 7 Bankruptcy Lawyers at LeViness, Tolzman & Hamilton to Learn the Facts About Filing for Chapter 7 Bankruptcy

When you hear people refer to bankruptcy, they are often talking about the fresh financial start that you can get, free of the debts that have weighed you down for some time. In these cases, they are referring to a Chapter 7 bankruptcy, which allows you to emerge from the process with many types of debt expunged entirely. Chapter 7 is known as a “liquidation” because you must give something in exchange for your debt going away. An experienced bankruptcy lawyer can advise you both about whether the process makes sense for you and whether you can qualify for a Chapter 7 proceeding.

How Does a Chapter 7 Bankruptcy Work?

A Chapter 7 bankruptcy is, in a sense, a final settlement of the debt that you owe before it gets wiped away. You would need to surrender certain property to the bankruptcy trustee, which they may then sell or give to your creditors. It does not matter whether your creditors are receiving pennies on the dollar for the amount that they are owed, or even nothing at all. So long as you complete the requirements for Chapter 7 bankruptcy, your debts are extinguished.

Will I Need to Give the Bankruptcy Trustee Everything I Own?

Maryland law allows for exemptions for some categories of property, which means that you may not have to surrender everything in exchange for Chapter 7 bankruptcy protection. Under the law, exemptions for your personal property include the following:

Homestead Exemptions: You can keep up to $25,150 in equity in your primary residence.
Personal Property: You can protect up to $6,000 in cash or any other type of personal property, as well as $5,000 in personal property.
Public and Retirement Benefits: If you have a pension or are receiving other public benefits, they are protected in a Chapter 7 bankruptcy.
Retirement Plans: If you have assets in a 401 (k) or other qualified retirement plan, they would not be turned over to the trustee.
Life Insurance and Personal Injury Settlements: Proceeds from a life insurance policy or a settlement in a personal injury case are yours to keep.

As you can see, there is a cost to declaring Chapter 7 bankruptcy, but it may be one that you are prepared to pay in exchange for debt forgiveness.

The Role of the Automatic Stay in a Chapter 7 Bankruptcy Case

Once you make the initial Chapter 7 filing, there is an automatic stay that goes into effect. Your creditors are no longer allowed to take any steps to collect on the debt that you owe. If they violate the automatic stay, there could be consequences for your creditors.

How Long Does a Chapter 7 Bankruptcy Case Take?

A Chapter 7 bankruptcy typically takes about four to six months from the date of filing to discharge. After you submit your petition, you will attend a meeting of creditors (usually within 30–45 days). If there are no objections or complications, the court will issue a discharge order eliminating qualifying debts. While the process is relatively quick, working with an experienced bankruptcy lawyer helps ensure there are no delays or mistakes that could prolong your case.

Who Qualifies for a Chapter 7 Bankruptcy?

The law recognizes that creditors may suffer in a Chapter 7 bankruptcy because they may get practically nothing for the money they are owed. Accordingly, there are strict limitations on who is eligible to seek Chapter 7 bankruptcy relief. Maryland applies a means test to limit eligibility to only two people below a certain income level. The means test considers not only your income, but also the size of your family and household expenses.