Why Chapter 7 Is Important

By Jonathan Petts


To state the obvious, Chapter 7 transforms lives. For the “honest but unfortunate debtor,” Chapter 7 erases medical and credit card debt, and stops for harassing bill collectors.

Excluding cases that are dismissed or converted, a remarkable 99% of Chapter 7 cases result in a discharge. Even better, the debtor keeps everything he owns in 93% of cases. And most of the cases where the debtor does give up property (usually real estate or tax refunds) could be avoided with good planning.

The importance of this outcome, erasing unsecured debt and keeping assets, is difficult to overstate for debtors in financial distress. As any consumer bankruptcy lawyer can tell you, Chapter 7 lifts a huge boulder off of one’s shoulders, creating a new beginning in life.

In short, Chapter 7 is one of the very best parts of American capitalism. Personal success stories following bankruptcy abound. Walt Disney’s first movie studio resulted in a bankruptcy filing, before he bounced back to create cartoons that would delight millions. Milton Hershey had two failed candy businesses, before he found his chocolate recipe that Americans still love today.

And, of course, Abraham Lincoln declared bankruptcy due to a failed business in 1833, before going on to become a self-taught lawyer and our 16th president — to unify the country, write the Gettsyburg Address, and end slavery. Now that’s a turnaround.

At Upsolve, we’re dedicated to making the benefits of Chapter 7 more accessible to low-income Americans in financial distress.