Consumer bankruptcy is the federal legal process that lets an individual either erase most debts they cannot pay or restructure them into an affordable court-supervised plan. Two chapters of the U.S. Bankruptcy Code do almost all the work for ordinary filers. Chapter 7 liquidates non-exempt property and discharges most remaining unsecured debt within a few months.1Office of the Law Revision Counsel. 11 USC Chapter 7 – Liquidation Chapter 13 sets up a three-to-five-year repayment plan and lets you keep your property while you catch up.2Office of the Law Revision Counsel. 11 USC Chapter 13 – Adjustment of Debts of an Individual With Regular Income Both share the same protections against creditors and the same goal of giving an honest debtor a real financial fresh start.
Chapter 7 and Chapter 13 Compared
Chapter 7 is the faster and more common form. A court-appointed trustee reviews what you own, sells anything that isn’t protected by an exemption, and distributes the proceeds to creditors. The court then discharges most remaining debts, meaning you no longer have any legal obligation to pay them. Most cases close within three to four months of filing.
In practice, the vast majority of consumer Chapter 7 cases are “no-asset” cases. Everything the debtor owns falls within allowed exemptions, the trustee has nothing to sell, and creditors receive no distribution. The debtor gets the discharge and moves on. That outcome surprises people who picture bankruptcy as losing everything, but it’s overwhelmingly the norm.
Chapter 13 works differently. Instead of liquidating property, you propose a repayment plan and make monthly payments to a trustee, who distributes the money to your creditors over the life of the plan. You keep your assets, including property you might otherwise lose in Chapter 7, as long as you stay current. This chapter is particularly useful for catching up on mortgage arrears or car loan payments without losing the home or vehicle securing those debts.
Plan length depends on income. If your household income falls below the state median for your household size, the plan can run up to three years, though a court can approve up to five years for good cause. If your income meets or exceeds the state median, the plan runs up to five years.3Office of the Law Revision Counsel. 11 USC 1322 – Contents of Plan
Who Qualifies for Chapter 7
Not everyone can choose Chapter 7. A screening calculation called the means test determines whether your income is low enough. The test exists to steer higher-income filers toward Chapter 13 repayment rather than a quick discharge.4United States Department of Justice. Means Testing
The first step compares your household’s current monthly income, multiplied by twelve, against the median family income for your state and household size. If your annualized income falls at or below the median, you pass. No further calculation is required, and no creditor or trustee can force a presumption of abuse.5Office of the Law Revision Counsel. 11 USC 707 – Dismissal of a Case or Conversion to a Case Under Chapter 11 or 13
If your income exceeds the state median, the test moves to a second step. You subtract certain allowed living expenses, including IRS-published standards for housing, food, transportation, and healthcare, along with actual payments on secured debts like mortgages and car loans. The result is your monthly disposable income. If that disposable income, projected over five years, would allow you to repay a meaningful portion of your unsecured debt, the court presumes abuse and will either dismiss your Chapter 7 case or convert it to Chapter 13. You can overcome the presumption by documenting special circumstances, such as a serious medical condition or a call to active military duty, that justify additional expenses beyond the standard allowances.
Who Qualifies for Chapter 13
Chapter 13 has its own gates. Your unsecured debts must be less than $526,700 and your secured debts must be less than $1,580,125.6United States Courts. Chapter 13 Bankruptcy Basics You also need regular income sufficient to fund the proposed plan payments. Chapter 13 is often the right fit for someone with steady income who has fallen behind on a mortgage, has non-exempt assets they want to protect, or whose income is too high to qualify for Chapter 7.
The Automatic Stay Starts the Moment You File
Once your petition reaches the court, an automatic stay takes effect. This is one of the most powerful features of bankruptcy. It immediately stops creditors from collecting debts, garnishing wages, calling you, filing or continuing lawsuits, foreclosing on your home, or repossessing your car.7Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay For someone facing a wage garnishment or an imminent foreclosure sale, filing can bring relief within hours.
The stay has exceptions. Family court proceedings involving custody, visitation, domestic violence, and the establishment of support obligations continue despite the bankruptcy filing. Collection of domestic support from property that isn’t part of the bankruptcy estate also continues.
Repeat filers face significantly weaker protection. If you had a bankruptcy case dismissed within the past year, the automatic stay in your new case expires after just 30 days unless you convince the court to extend it. If two or more cases were dismissed in the past year, no automatic stay takes effect at all unless the court specifically orders one after finding the new filing was made in good faith.
What Property You Keep: Exemptions
Exemptions determine what property you keep when you file. Every state has its own exemption scheme, and roughly twenty states also let you choose the federal exemption amounts instead. In the remaining states, you must use the state exemptions. Which system applies can make an enormous difference, so this is one of the first things to evaluate before filing.
Under the federal exemptions, as adjusted effective April 1, 2025, the key protected amounts are:8Federal Register. Adjustment of Certain Dollar Amounts Applicable to Bankruptcy Cases
- Homestead: up to $31,575 in equity in your primary residence.
- Motor vehicle: up to $5,025 in equity in one vehicle.
- Household goods: up to $800 per item and $16,850 total for furniture, appliances, clothing, and similar items.
- Jewelry: up to $2,125.
- Wildcard: $1,675 in any property, plus up to $15,800 of any unused portion of the homestead exemption, which you can apply to any asset.
- Tools of trade: up to $3,175 in implements, books, or tools used in your profession.
State exemptions vary widely. Some states offer unlimited homestead protection; others cap it well below the federal amount. If you own significant home equity, the choice between federal and state exemptions (where that choice exists) often determines whether Chapter 7 is viable at all.
The Steps From Filing to Discharge
Pre-Filing Credit Counseling
Before you can file either type of bankruptcy, you must complete a briefing with an approved nonprofit credit counseling agency. The session covers your financial situation, explores alternatives, and walks through a basic budget. It must take place within the 180 days before you file your petition.9Office of the Law Revision Counsel. 11 USC 109 – Who May Be a Debtor
The agency issues a certificate when you finish, and that certificate gets filed with your petition. Without it, the court will dismiss your case. Most agencies offer the session by phone or online, and the cost typically runs $10 to $50. Fee waivers are available for people who can’t afford it. If an emergency makes it impossible to complete counseling before filing, you can request a temporary exemption, but you’ll need to finish within 30 days of the petition date (with a possible 15-day extension for cause).
The Petition Itself
The petition is a detailed snapshot of your financial life. You’ll gather tax returns from the two most recent years, pay stubs for the six months before filing, and account statements for every bank, investment, and retirement account you hold. You also need a complete list of everyone you owe, with current balances and mailing addresses. The schedules cover all property you own, the exemptions you’re claiming, your secured debts, your priority and general unsecured debts, and your current income and monthly expenses. A Statement of Financial Affairs covers payments, property transfers, lawsuits, and other activity during the period before filing.
Everything is submitted under penalty of perjury, so accuracy matters. Value personal property at what it would sell for today, not what you paid for it. For most household goods and used electronics, that figure is far lower than people expect.
The filing fee is $338 for Chapter 7 and $313 for Chapter 13. If you can’t afford the fee, you can request to pay in installments or, in Chapter 7 cases, apply for a fee waiver based on income.
The 341 Meeting of Creditors
After filing, the U.S. Trustee schedules a meeting of creditors, known as the 341 meeting. In Chapter 7 cases, it occurs between 21 and 40 days after filing. In Chapter 13 cases, the window is 21 to 50 days.10Legal Information Institute. Federal Rules of Bankruptcy Procedure Rule 2003 – Meeting of Creditors or Equity Security Holders
The meeting is less dramatic than it sounds. You appear before the trustee assigned to your case, answer questions under oath about your finances, and confirm the accuracy of your petition.11United States Department of Justice. Section 341 Meeting of Creditors The trustee will ask about your income, recent property transfers, expenses, and any assets that might not be fully exempt. Creditors are invited but rarely show up in routine consumer cases. The whole thing usually takes ten to fifteen minutes. Bring a government-issued photo ID and proof of your Social Security number. Failing to attend means your case cannot move toward discharge and will likely be dismissed.
The Post-Filing Financial Management Course
The pre-filing counseling is only the first of two required educational steps. After filing, you must also complete a course on personal financial management before the court will grant a discharge. In Chapter 7, that means finishing within the roughly 60 days between filing and the expected discharge date. In Chapter 13, you need to complete it before your final plan payment.12Office of the Law Revision Counsel. 11 USC 727 – Discharge13Office of the Law Revision Counsel. 11 USC 1328 – Discharge
The course covers budgeting, managing money, and using credit responsibly. It takes about two hours, is available online through approved providers, and typically costs around $20. Skip this step and the court will close your case without discharging your debts.
Debts That Survive Bankruptcy
Not all debts can be discharged. Certain obligations survive both Chapter 7 and Chapter 13.14Office of the Law Revision Counsel. 11 USC 523 – Exceptions to Discharge
- Domestic support. Child support and alimony obligations remain fully enforceable, and the automatic stay doesn’t even pause collection from non-estate property.
- Certain tax debts. Recent income taxes, particularly those for returns due within the three years before filing, along with taxes tied to fraudulent returns or willful evasion, are not dischargeable.
- Government fines and restitution. Criminal restitution, court-ordered fines, and most government penalties survive the discharge.
- Fraud-based debts. Money obtained through false pretenses, fraudulent financial statements, or large cash advances and luxury purchases made shortly before filing is excluded from discharge.
- Debts from willful injury. If you intentionally harmed someone or their property, the resulting debt is nondischargeable.
Student loans sit in their own category. They are presumed nondischargeable, but a debtor who can prove that repayment would impose an undue hardship can get them discharged. This requires a separate lawsuit (an adversary proceeding) within the bankruptcy case. For years, courts applied the standard so strictly that barely anyone succeeded. That has started to shift. Updated federal guidance directs government attorneys to evaluate whether a borrower can maintain a minimal standard of living while repaying, whether that inability is likely to persist for a significant portion of the repayment period, and whether the borrower has shown good faith toward their loan obligations. When those factors weigh in the borrower’s favor, the government is now expected to recommend discharge rather than fight it.15Federal Student Aid. Undue Hardship Discharge of Title IV Loans in Bankruptcy Adversary Proceedings
Keeping Secured Property: Reaffirmation
In a Chapter 7 case, you can choose to keep property that secures a debt, like a financed car, by signing a reaffirmation agreement. This is a new contract in which you agree to remain personally liable for that specific debt despite the bankruptcy discharge. The lender keeps the collateral off limits from the trustee, and you keep paying as if you never filed.16Office of the Law Revision Counsel. 11 USC 524 – Effect of Discharge
Reaffirmation carries real risk. If you later fall behind on the reaffirmed debt, the lender can repossess the property and still sue you for any remaining balance, just as if you had never filed bankruptcy. The agreement must be signed before the discharge is entered, and you can cancel it at any time before discharge or within 60 days after it’s filed with the court, whichever is later. If you have an attorney, the attorney must certify that the agreement won’t impose an undue hardship and that you understand the consequences. If you don’t, the court itself must approve the agreement after a hearing where you appear in person.
What It Costs
Filing fees are only the starting point. Attorney fees for a straightforward Chapter 7 case generally range from roughly $800 to $2,400 depending on your location and the complexity of your finances. Chapter 13 cases involve more attorney work because the lawyer participates throughout a multi-year plan. Courts in most districts set a presumptive fee (sometimes called a “no-look” fee) for standard Chapter 13 representation, typically between $3,000 and $7,000. These fees can often be folded into the repayment plan itself rather than paid upfront.
Add the credit counseling session ($10 to $50), the financial management course (around $20), and any costs for obtaining credit reports, tax transcripts, or pay stubs. Filing without an attorney is legally permitted, but mistakes in the petition can lead to dismissal, loss of assets that should have been exempt, or denial of discharge.
What Happens to Your Credit
Under the Fair Credit Reporting Act, a bankruptcy filing can remain on your credit report for up to ten years from the date of the order for relief.17Office of the Law Revision Counsel. 15 USC 1681c – Requirements Relating to Information Contained in Consumer Reports In practice, the major credit bureaus typically remove a completed Chapter 13 case after seven years, though the statute permits ten. A Chapter 7 discharge stays the full ten.
The credit score hit is immediate and steep, but the trajectory afterward depends almost entirely on what you do next. Most people see their scores begin recovering within a year or two of discharge, especially if they take on a small amount of new credit, such as a secured credit card, and pay it reliably. The debts that dragged the score down before bankruptcy are gone, and the absence of collection accounts, late payments, and maxed-out balances starts working in your favor.
People who file bankruptcy often already have severely damaged credit. For those filers, the bankruptcy notation on the report matters less than the elimination of the debt load that was destroying their score in the first place. Lenders who specialize in post-bankruptcy borrowers exist in every market, though interest rates will be higher than what borrowers with clean histories pay. Those rates improve as time passes and responsible use of credit rebuilds the record.
When a Case Fails
A discharge is the successful outcome: the court wipes out your eligible debts and the case closes with a fresh start. A dismissal is the opposite: the case closes, but your debts remain exactly as they were. The automatic stay lifts, creditors resume collection, and nothing has been eliminated.
Common reasons for dismissal include failing to file required documents, skipping the 341 meeting, not completing the counseling or financial management course, failing to make Chapter 13 plan payments, or failing the means test without converting to Chapter 13. You can generally refile after a dismissal, but the automatic stay restrictions on repeat filers described above apply.