What does chapter 7 bankruptcy mean?

A type of bankruptcy in which most of someone's debts are forgiven as a result of the court-supervised liquidation of most of their assets. Assets are turned over to a court-appointed trustee who provides for their sale and then distributes funds to owed creditors based on certain priority rules.

A number of assets are exempt from liquidation under Chapter 7 bankruptcy, and while the exact list varies by state, it usually includes one's primary vehicle, clothing and furniture, tools used for business purposes, and at least some home equity. Similarly, some debts may not be discharged as a result of Chapter 7 bankruptcy, including student loans, child support, and certain taxes.

Chapter 7 bankruptcy is disastrous for a person's credit rating. Any future credit cards and loans will be offered at high rates, if at all, for someone who has declared Chapter 7 Bankruptcy. That doesn't mean you shouldn't at least consider Chapter 7 bankruptcy if you are mired in debt because it might be your best course of action. Many bankruptcy attorneys offer free consultations, so if you have been unable to reach a debt settlement or debt management agreement with your creditors.