Filing for bankruptcy is a federal court process that either wipes out qualifying debts or reorganizes them into a court-supervised repayment plan. Which outcome you get depends on the chapter of the Bankruptcy Code you file under, your income, and what you own. The moment your petition reaches the court clerk, creditors have to stop calling, suing, garnishing, and foreclosing while the case plays out.
Which Chapter Fits Your Situation
Most individuals file under one of two chapters. Chapter 7 liquidates: a court-appointed trustee reviews your assets, sells anything not protected by an exemption, pays creditors from the proceeds, and the court then discharges most remaining unsecured debts.1Cornell Law School. Chapter 7 Bankruptcy In practice, most Chapter 7 filers have little or no non-exempt property, so nothing is sold and the debts are simply erased.
To file Chapter 7 you have to pass a means test. If your household income is below the median for your state, you generally qualify. If it’s above the median, the test subtracts allowable living expenses set by IRS National Standards to see whether you have enough disposable income to fund a repayment plan instead.1Cornell Law School. Chapter 7 Bankruptcy Those National Standards allow $839 a month for a single person and $2,129 for a family of four, with $394 added for each additional household member.2Internal Revenue Service. National Standards: Food, Clothing and Other Items
Chapter 13 is the alternative for people with regular income who want to keep their property. You propose a three-to-five-year plan, make monthly payments to a trustee, and the trustee pays creditors. Homeowners behind on their mortgage often choose Chapter 13 because it lets them catch up on missed payments while keeping the house.3Cornell Law School. Chapter 13 Bankruptcy There are debt ceilings: as of April 2025, unsecured debts must total less than $526,700 and secured debts less than $1,580,125.4Office of the Law Revision Counsel. 11 USC 109 – Who May Be a Debtor Any qualifying balance still owed at the end of the plan is discharged.
Two other chapters exist but aren’t options for most consumer filers. Chapter 11 is a reorganization tool for businesses, and for individuals whose debts exceed the Chapter 13 caps.5Internal Revenue Service. Chapter 11 Bankruptcy – Reorganization Chapter 12 is a specialized reorganization for family farmers and fishermen, with flexible payment schedules that track seasonal income.6United States Courts. Chapter 12 – Bankruptcy Basics
What Happens the Moment You File
When the clerk receives your petition, a court order called the automatic stay takes effect. No motion, no hearing. The stay stops most creditor actions against you, including lawsuits, wage garnishments, foreclosure proceedings, repossessions, and collection calls.7Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay It stays in place for the duration of the case unless a creditor asks the court to lift it. A mortgage lender, for example, may get permission to resume foreclosure if you aren’t making payments. A creditor who knowingly violates the stay can be ordered to pay damages.
Some things keep moving. Criminal proceedings continue. Family law matters, including divorce, custody, visitation, domestic violence cases, and paternity, go forward, though the divorce court can’t divide property that belongs to the bankruptcy estate. Collection of child support and alimony continues largely uninterrupted: your income can still be withheld for support, your tax refund can still be intercepted, and overdue support can still be reported to credit bureaus. Government agencies can also continue exercising their police and regulatory powers.7Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay
Before you can file at all, you have to complete a credit counseling session from a nonprofit agency approved by the U.S. Trustee Program, within 180 days of filing.8GovInfo. 11 USC 109 – Who May Be a Debtor The session covers your finances and walks through alternatives such as debt management plans. After you file, a second course, called debtor education or financial management, has to be completed before the court will grant your discharge: within 45 days of the first scheduled meeting of creditors in a Chapter 7 case, or before your last plan payment in a Chapter 13. Skip it and the court can close your case with no discharge.
What You Keep and What You Give Up
Bankruptcy doesn’t mean losing everything. Federal and state exemption laws protect a defined set of property from the trustee, typically covering equity in your home, a vehicle, clothing, household goods, retirement accounts, and tools of your trade.
Your available exemptions depend on where you live. The Bankruptcy Code provides a federal list, but states are allowed to opt out and require residents to use state exemptions. In states that haven’t opted out, you can pick whichever list protects more of your property. The federal homestead exemption currently shields up to $31,575 in equity in your primary residence. There’s also a federal wildcard of $1,675 plus up to $15,800 of any unused homestead amount, which you can apply to any property. Married couples filing jointly double these federal amounts.9Office of the Law Revision Counsel. 11 USC 522 – Exemptions State homestead exemptions vary widely, from a few thousand dollars to unlimited protection in some states, though the unlimited ones usually come with acreage caps. If you moved recently, you generally have to have lived in a state for 40 months to claim the full benefit of its exemptions.
The trustee is the impartial official who administers your case. They don’t represent you, and they don’t represent your creditors. Their job is to review your disclosures for accuracy, identify any non-exempt assets, and make sure creditors get what the law entitles them to.10Office of the Law Revision Counsel. 11 USC 704 – Duties of Trustee They also preside over the meeting of creditors, where you answer questions under oath about your finances. The judge doesn’t attend. Creditors can attend, but in most consumer cases few do.11Office of the Law Revision Counsel. 11 USC 341 – Meetings of Creditors and Equity Security Holders
Which Debts Actually Go Away
The point of most bankruptcy cases is the discharge, a court order that permanently eliminates your personal responsibility for qualifying debts. Once entered, it works as a permanent injunction: creditors can never again sue you, garnish your wages, or contact you to collect the discharged amounts.12Office of the Law Revision Counsel. 11 USC 524 – Effect of Discharge Timing depends on chapter. A Chapter 7 discharge usually arrives a few months after filing, once the trustee finishes reviewing your assets. A Chapter 13 discharge comes only after you complete every payment under your plan, three to five years later.
Some debts survive a discharge no matter which chapter you file. Federal law spells them out:13Office of the Law Revision Counsel. 11 USC 523 – Exceptions to Discharge
- Domestic support obligations, including child support and alimony.
- Recent income taxes (generally from the past three years), taxes where no return was filed, and taxes involving fraud.
- Debts obtained through fraud or false pretenses.
- Student loans, unless you win a separate court proceeding for undue hardship.
- Debts you failed to list in your petition.
- Criminal fines and most government penalties.
Last-minute spending gets extra scrutiny. Luxury purchases charged to a single creditor shortly before filing, and large cash advances on credit cards in the weeks leading up to the petition, are presumed nondischargeable as fraudulent. The dollar thresholds and lookback windows are set by statute and adjusted periodically.13Office of the Law Revision Counsel. 11 USC 523 – Exceptions to Discharge
Student loans deserve a closer look because so many filers ask about them. Discharge is possible but difficult. You have to file a separate action inside your bankruptcy called an adversary proceeding and prove undue hardship. Most federal courts apply a three-part test: you can’t maintain a minimal standard of living while repaying, the hardship is likely to persist for most of the repayment period, and you’ve made good-faith efforts to repay. The Department of Justice, working with the Department of Education, uses a standardized attestation form process meant to make the evaluation more consistent and less burdensome for borrowers.14U.S. Department of Justice. Student Loan Guidance
What It Costs to File
The court’s filing fee is $338 for Chapter 7, $313 for Chapter 13, and $1,738 for Chapter 11. Courts can let individuals pay in installments, and Chapter 7 filers whose income is below 150 percent of the federal poverty guidelines can have the fee waived entirely.
Attorney fees are usually the larger expense. A straightforward Chapter 7 case typically runs $600 to $3,000 depending on complexity and location. Chapter 13 tends to cost more, generally $1,800 to $7,500, because it involves drafting and monitoring a multi-year plan. Many Chapter 13 attorneys fold their fees into the repayment plan so you don’t have to pay the full amount upfront. Filing without a lawyer is legally permitted, but bankruptcy’s procedural rules make mistakes costly.
Add the two required courses. Credit counseling before you file and debtor education after each typically cost around $50, and both fees can be waived or paid in installments for filers who can’t afford them. Both courses have to be taken through agencies approved by the U.S. Trustee Program.
What Bankruptcy Does to Your Credit
A bankruptcy filing can appear on your credit report for up to ten years from the date the court enters the order for relief.15Office of the Law Revision Counsel. 15 USC 1681c – Requirements Relating to Information Contained in Consumer Reports In practice, the three major credit bureaus typically remove a Chapter 13 filing after seven years, because the debtor repaid a portion of what was owed. Chapter 7 generally stays the full ten. During that time your score will be lower, and borrowing will be harder and more expensive.
The impact fades, and you can start rebuilding right after discharge. Federal mortgage programs set defined waiting periods. For an FHA-insured mortgage, you need to wait at least two years after a Chapter 7 discharge and show you’ve re-established good credit or chosen not to take on new debt. If the bankruptcy resulted from circumstances beyond your control, that wait can drop to as little as 12 months. After a Chapter 13 filing, you can apply for an FHA mortgage after 12 months of on-time plan payments, with court permission.16U.S. Department of Housing and Urban Development. How Does a Bankruptcy Affect a Borrowers Eligibility for an FHA Mortgage