Chapter 7 bankruptcy is available for individuals who reside, have a place of business, or own property in the United States. This type of bankruptcy is known as liquidation. In a Chapter 7 bankruptcy, the individual is allowed to keep certain exempt property. Most liens, however (real estate mortgages and security interests for car loans), survive. The value of property that can be claimed as exempt varies from state to state. Other assets, if any, are sold by the interim trustee to repay the creditors. Unsecured debts are legally discharged by the bankruptcy proceeding, but there are certain of debts that are not discharged in a Chapter 7. Common exceptions to discharge include child support, income taxes less than 3 years old and property taxes, student and fines and restitution imposed by a court for crimes committed by the debtor. Chapter 7 bankruptcy filings do not discharge spousal support or property settlements through divorce. All debts must be listed on bankruptcy schedules.

After chapter 7 bankruptcy petition is filed, the bankruptcy filing will appear on an individual's credit report for 10 years. A chapter 13 bankruptcy will appear on an individual's credit report for 7 years from the date of filing. This filing of a bankruptcy petition will make credit less available and/or terms less favorable. That must be balanced against the removal of actual debt from the filer's record by the bankruptcy, which improves creditworthiness. Future ability to obtain credit is dependent on multiple factors and difficult to predict.

If a debtor is able to repay some or all of his debt from their disposable income within the 5 year time period of Chapter 13, the U.S. Trustee may view the filing as abusive. The U.S. Trustee may succeed in preventing the debtor from receiving a discharge under Chapter 7, forcing the debtor into Chapter 13.

It is widely held amongst bankruptcy practitioners that the U.S. Trustee has become much more aggressive in recent times in pursuing abusive Chapter 7 filings. By challenging the debtors through this tactic the U.S. Trustee has achieved a regulatory system that Congress and most creditor-friendly commentators have consistently espoused, i.e., a formal means test for Chapter 7. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 clarified this area of concern by making changes to the U.S. Bankruptcy Code that includes language imposing a means test for Chapter 7 cases.

Creditworthiness and the likelihood of receiving a Chapter 7 discharge are one of many factors debtors must face on whether to file bankruptcy. The importance of the effects of bankruptcy on creditworthiness is usually overemphasized because by the time most debtors are ready to file for bankruptcy their credit is ruined. They typically are unable to obtain any credit.

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