No, you do not have to sell everything in a Chapter 7 bankruptcy. While it is known as "liquidation" bankruptcy, most filers keep their property through "exemptions" designed to protect basic necessities like clothing, household goods, a primary vehicle, and tools of the trade. The trustee only sells "nonexempt" assets.
With Chapter 7 bankruptcy, your non-exempt assets are sold to repay your creditors. If the value of the assets does not fully repay the debt, the remaining debt is legally dismissed. However, certain debts cannot be discharged in bankruptcy, such as court-ordered payments, criminal fines and some tax liens.
Although an individual chapter 7 case usually results in a discharge of debts, the right to a discharge is not absolute, and some types of debts are not discharged. Moreover, a bankruptcy discharge does not extinguish a lien on property.
The "Chapter 7 90-day rule," also known as the preferential transfer period, allows a bankruptcy trustee to recover certain payments or asset transfers made to specific creditors in the 90 days before a Chapter 7 filing, aiming to ensure fair distribution among all creditors, with a longer 1-year lookback for insiders like family or business partners. If you paid a creditor $600 or more (or gave them property) within this window, and that payment gave them a better return than they'd get in bankruptcy, the trustee can "claw back" the funds to redistribute them fairly. This rule prevents debtors from unfairly favoring one creditor over others right before filing for bankruptcy.
Filing for Chapter 7 bankruptcy doesn't mean losing everything. In fact, most people who file get to keep all of their property, including their home, car, clothes, and everyday household items.
To qualify for Chapter 7 bankruptcy in California, your income must be below the state's median income for your household size. For example, as of 2025, the monthly income limit is $5,030 for a single-person household and $8,620 for a four-person household.
Chapter 7 Bankruptcy involves liquidating assets to pay debts. Most unsecured debts, including credit card balances, are discharged, meaning you're no longer responsible for repaying them. However, retaining a credit card is uncommon unless you reaffirm the debt, agreeing to pay it even after bankruptcy.
You're disqualified from Chapter 7 if you fail the means test (too much income), committed fraud (hiding assets, lying), filed bankruptcy recently (within 8 years for Chapter 7), didn't complete required credit counseling/debtor education, or failed to comply with court orders or pay fees, with significant factors being high income, past bankruptcy abuse, and dishonesty.
Chapter 7 bankruptcy discharges most unsecured debts, offering individuals a fresh start by eliminating personal liability for things like credit card bills, medical expenses, payday loans, past-due utilities, and personal loans, while non-dischargeable debts include child support, alimony, most recent taxes, student loans (unless undue hardship is proven), and debts from drunk driving or fraud. Secured debts, like mortgages, aren't eliminated; you must keep paying to keep the property, though any deficiency balance after repossession can be discharged.
The main cons of Chapter 7 bankruptcy are a severe, long-term hit to your credit (up to 10 years), potential loss of non-exempt assets (like second homes or luxury vehicles) as they are sold to pay creditors, restrictions on refiling for another 8 years, and the fact that some debts (like student loans, child support, and some taxes) are not discharged. You must also pass a means test to qualify, proving your income is low enough.
State Exemptions
Some states are pretty generous, while others barely let you keep enough for groceries. Here's a quick snapshot of what cash exemptions look like in a few states: California: $1,826 in cash or deposits (under System 1).
These are determined based on the actual amount you pay rather than standard amounts and include:
Most Chapter 7 bankruptcy filers can keep all household goods and furniture in bankruptcy, but not always. Whether you will be able to will depend on the property your state allows you to exempt or the federal exemption amount if your state allows you to choose between the state and federal exemption systems.
There's no one-size-fits-all limit on how much money you can have in the bank when you file. The exact amount you can have and protect depends on the bankruptcy exemptions available in your state.
Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years.
If your total monthly income over the course of the next 60 months is less than $7,475 then you pass the means test and you may file a Chapter 7 bankruptcy. If it is over $12,475 then you fail the means test and don't have the option of filing Chapter 7.
The good news is that if you – or the attorney you hire – gets the paperwork right and the case moves through the court to the point where debt discharge is determined, the U.S. Bankruptcy Courts says that 99% of Chapter 7 cases succeed.
After subtracting all the allowed expenses from your “current monthly income,” the balance is your “disposable income.” If you have no disposable income — your allowed expenses exceed your “current monthly income” — then you've passed the means test.
Your Chapter 7 bankruptcy trustee will likely check your bank accounts at least once during the process of overseeing your filing. They have a right to perform a full audit of your accounts or check them any time it is necessary. However, it is rare for them to keep close tabs on every account.
The automatic stay remains in effect until your case is closed. But, of course, it isn't always that simple. For Chapter 7, it's often the case that a stay will last the 3-5 months the court case is open. For Chapter 13, bankruptcy cases could take anywhere from 3-5 years.