Madoosa,
You must have posted while I was writing the above. It might have been your post about de-schooling where I got this idea. He wouldn't have to go into 8th grade but I wouldn't want him to repeat 7th grade. It's already too easy and repeating it wouldn't be a challenge at all. Plus, all his classmates would be going on to 8th. I think he'd really rebel if he had to repeat a grade.
I think he is not "switched on", which is a good phrase, thanks. That's why the deschooling might be good for him. So, I guess my post should have been about deschooling instead of unschooling. My instinct tells me that something has to be done. My head tells me I have no idea what to do.
You seem to know what to do.
Nothing is forever and if you feel he needs the down time then I would suggest giving it to him. I am sure you could still get him into 8th grade if you both wanted him to return to school by then. Otherwise he could stay home and learn through home or unschooling and then have more time and energy to hang out with friends after school.
At the very least if something needs to be done, then please don't leave it. Do something, even if its just to remove the school thing and allow him time and space to just be for a while. You can figure it out together later. Nothing is forever
all the best in making the decision. You will find that once you have made it it will be a lot easier and YOU will feel at peace about it.