Chapter 7 Bankruptcy: What Will It Cost and Will It Wipe Out My Debts?

If you're overwhelmed with debt, you might be wondering if it's worth it to file for bankruptcy. Taking this step could give you a fresh start, but bankruptcy can also have downsides, like affecting your credit score and ability to borrow money. Before you decide, it's helpful to look at the benefits and the costs. We asked readers across the U.S. about their recent experiences with Chapter 7 bankruptcy.

Here's an overview of what they told us.

How Much Does a Lawyer Charge for Chapter 7 Bankruptcy?

The first thing you probably want to know about bankruptcy is how much it will cost. Everyone who files for Chapter 7 has to pay for:

• the $338 filing fee (as of August 2022) unless your income is low enough to qualify for a waiver, and
• two required bankruptcy counseling courses of about $60 or less each.

But the real cost is in hiring a lawyer. Bankruptcy is complicated, and mistakes can cause significant financial problems. So it's not surprising that 95% of our readers hired attorneys to represent them in their Chapter 7 cases. They paid their lawyers an average flat fee of $1,450 to prepare the bankruptcy petition and represent them at the court appearance, with cases typically ranging between $1,000 and $1,750.

Of course, the actual fees vary, depending largely on how complex your finances are, where you live, and the kind of attorney you hire. For instance, some large bankruptcy firms may offer lower prices by having paralegals prepare the paperwork. If any of your creditors challenge your ability to wipe out or "discharge" debts, your attorney will charge extra to defend you against that challenge.

But this happens rarely. Only 5% of our readers faced a creditor challenge in their Chapter 7 cases.

Bankruptcy Discharge: Different Results for Different Debts

In Chapter 7 bankruptcy, you can usually wipe out almost all qualifying debts. Qualifying debts usually include credit card balances, medical and utility bills, and personal loans. You can even wipe out "secured" debt like mortgages and car loans, but you'll have to return the property to the lender. Learn about keeping your house or retaining your car in bankruptcy.

"Priority" debts, like taxes and unpaid child or spousal support, are "nondischargeable" and don't go away in bankruptcy. Student loans, debts incurred through fraud, and wrongful death and injury obligations resulting from intoxication are also examples of nondischargeable debts.

Our readers had great results getting their qualifying debts wiped out, mixed results on some debts with special rules (back taxes), and poor results with student loan debt.

Qualifying Debts

More than nine out of ten readers had balances on their credit cards when they filed for bankruptcy—the most common kind of debt they reported by far. Almost all of them (98%) got those debts completely wiped out in their Chapter 7 cases.

Also, nearly half of our readers had unpaid medical bills, and they were nearly as successful in getting relief for those debts (95% received a full discharge, while another 4% received a partial discharge). In general, readers also had high discharge rates for other types of qualifying debts, including:

• lawsuit judgments (after creditors sued and received a judgment against you in court)
• business debts for which you're personally liable, and
• utility and phone bills.

If you're wondering why some bankruptcy filers' qualifying debts might not be discharged in bankruptcy, it starts when a creditor files an objection to a discharge.

Back Taxes

It's difficult—but not impossible—to discharge some older debts for unpaid income taxes (see our article on eliminating tax debts in bankruptcy). Our survey showed that readers had mixed results in their Chapter 7 cases with tax debt: About six in ten got a full or partial discharge, but the amounts involved weren't large ($3,000 or less for nearly two-thirds of readers).

Student Loans

Usually, you can't wipe out student loan debt in bankruptcy. But there is an exception if you file a separate lawsuit known as an "adversary proceeding" and prove that it would be an "undue hardship" for you to repay the loans. Only 15% of our readers with student loan bills got a full or partial discharge.

However, it may be that many of the remaining 85% didn't file an adversary proceeding. As reported in a 2011 study, more than a third of bankruptcy filers who take that step can get some relief.

Can You Keep Your House or Car in Chapter 7 Bankruptcy?

If you have secured debts for a house and a car, you're also probably concerned about whether you can keep them after filing for bankruptcy. In Chapter 7, you can keep a house or car if:

• you're not behind on loan payments when you file (or you've had a loan modification to get current), and
• all of your equity in the property is protected or "exempt" under the laws in your state.

More than two-thirds (68%) of our readers were able to keep their homes after going through Chapter 7, while nearly nine in ten (87%) kept their cars. They experienced one of the big pluses of bankruptcy: freeing up money to pay off secured debts (like a house or car) by wiping out unsecured debts like credit card bills.

Even for those who lose their house or car, bankruptcy might still offer advantages. For more details, see our articles on what happens with your home and your car in Chapter 7 bankruptcy.

How Long Does Chapter 7 Bankruptcy Take?

Chapter 7 bankruptcy is usually a quick process. Nine out of ten readers who filed for Chapter 7 had their debts wiped out in six months or less, and it took only three months for more than half of our readers.

Also, 88% of readers said they got another kind of immediate relief as soon as they filed for bankruptcy: no more phone calls from debt collectors. That's because the court issues an order called an "automatic stay" to keep creditors from trying to collect their money. Learn why the automatic stay might not apply in your case if you've filed multiple bankruptcy matters.

The Bottom Line

In light of these results—high rates of discharge in a matter of months for the most common debts—it's not surprising that our readers were largely happy with their Chapter 7 experience. Over eight in ten (81%) said they were satisfied or very satisfied with the outcome of their cases, and nearly as many (78%) were satisfied or very satisfied with their lawyers. In fact, many readers told us that the process was unexpectedly "painless."