Filing for bankruptcy is a federal court process that either erases qualifying debts or reorganizes them into a court-supervised repayment plan. Which of those happens depends on the chapter you file under. Congress writes the rules — they live in Title 11 of the U.S. Code, known as the Bankruptcy Code — and the same framework applies in every state, though state law shapes what property you get to keep.
Chapter 7 or Chapter 13: The Choice Most Individuals Face
Most personal bankruptcies are filed under one of two chapters. The difference is straightforward: Chapter 7 liquidates, Chapter 13 repays.
In a Chapter 7 case, a court-appointed trustee reviews your assets, sells anything not protected by an exemption, and uses the proceeds to pay creditors. The court then discharges most remaining unsecured debts, meaning you are no longer legally obligated to pay them.1Cornell Law School. Chapter 7 Bankruptcy In practice, most Chapter 7 filers have few or no non-exempt assets, so nothing is sold and the case ends with a full discharge a few months after filing.
To qualify, you have to pass a means test. If your household income is below the median for your state, you generally qualify. If it is above, the test subtracts allowable living expenses set by IRS National Standards to decide whether you have enough disposable income to fund a Chapter 13 plan instead.1Cornell Law School. Chapter 7 Bankruptcy
Chapter 13 lets you keep your property while repaying some or all of your debts over three to five years. You propose a plan, and if the court approves it, you send monthly payments to a trustee who distributes the money to your creditors. Homeowners facing foreclosure often choose this route because it lets them catch up on missed mortgage payments while staying in the house.2Cornell Law School. Chapter 13 Bankruptcy You must have regular income, and your debts have to fit within statutory caps: as of April 2025, unsecured debts under $526,700 and secured debts under $1,580,125.3Office of the Law Revision Counsel. 11 USC 109 – Who May Be a Debtor When the plan finishes, the court discharges any remaining eligible balances.
Chapter 11 and Chapter 12
Two other chapters cover situations most individuals will never encounter. Chapter 11 is a reorganization tool used mainly by businesses, and by individuals whose debts exceed the Chapter 13 caps.4Internal Revenue Service. Chapter 11 Bankruptcy – Reorganization Small businesses with combined debts of $3,424,000 or less can use a streamlined version called Subchapter V.5United States Courts. Chapter 11 – Bankruptcy Basics Chapter 12 is reserved for family farmers and fishermen with regular annual income, and it allows monthly, quarterly, or annual payments to fit seasonal revenue.6United States Courts. Chapter 12 – Bankruptcy Basics
What Happens the Moment You File
The instant your petition reaches the clerk, a court order called the automatic stay takes effect. It stops most creditor actions against you: lawsuits, wage garnishments, foreclosures, repossessions, and collection calls all have to pause.7Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay No motion or hearing is needed. A creditor who knowingly violates the stay can be ordered to pay damages.
The stay lasts until your case ends, unless a creditor asks the court to lift it. A mortgage lender, for instance, can ask to resume a foreclosure if you fall behind on payments during the case.
What the Stay Does Not Stop
Some things go forward regardless. Criminal proceedings against you continue. Family law matters — divorce, child custody, visitation, domestic violence, paternity — also proceed, though the divorce court cannot divide property that belongs to the bankruptcy estate. Collection of child support and alimony keeps running: income withholding, tax refund interception, and credit reporting for past-due support all continue.7Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay Government police and regulatory actions, such as environmental enforcement, are also outside the stay.
What You Get to Keep
Bankruptcy does not mean losing everything. Federal and state exemption laws designate certain property that the trustee cannot sell. Typical categories include equity in your home, a vehicle, clothing, household goods, retirement accounts, and tools of your trade.
Which exemptions apply depends on your state. The Bankruptcy Code has a federal exemption list, but states may opt out and require residents to use state exemptions instead. In states that have not opted out, you can pick whichever list protects more of your property. The federal homestead exemption currently protects up to $31,575 of equity in your primary residence, and a federal wildcard exemption of $1,675 plus up to $15,800 of any unused homestead can be applied to any property. A married couple filing jointly doubles those federal amounts.8Office 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 (often subject to acreage limits). If you moved recently, you generally have to have lived in the state for at least 40 months before filing to claim its full homestead protection.
The Trustee and the 341 Meeting
Every case gets a trustee, an impartial official who administers it on behalf of the court. The trustee does not represent you or 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.9Office of the Law Revision Counsel. 11 USC 704 – Duties of Trustee
Early in the case, the trustee runs the “meeting of creditors,” known as the 341 meeting. The judge does not attend. The trustee questions you under oath about your finances, your assets, and the documents you filed. Creditors may attend and ask questions, though in most consumer cases few do. In a Chapter 7, the trustee also walks you through what the discharge means, your right to convert to another chapter, and the implications of reaffirming any debt.10Office of the Law Revision Counsel. 11 USC 341 – Meetings of Creditors and Equity Security Holders
Required Counseling Before and After You File
Individual filers have two mandatory education steps. Before filing, you must complete a credit counseling session from a nonprofit agency approved by the U.S. Trustee Program, taken within 180 days of your petition.11GovInfo. 11 USC 109 – Who May Be a Debtor The briefing reviews your finances and covers alternatives to bankruptcy. After filing, you have to finish a separate debtor education course before the court will grant your discharge — within 45 days after the first scheduled 341 meeting in a Chapter 7 case, or before your final plan payment in a Chapter 13. Miss it and the court can close the case with no discharge. Each course typically runs $50 to $100, and fees can be waived for filers who cannot afford them.
The Discharge and What It Does Not Erase
The point of most bankruptcy cases is the discharge, a court order that permanently eliminates your personal liability for qualifying debts. Once entered, it works as a permanent injunction: creditors can never again sue you, garnish wages, or contact you about the discharged amounts.12Office of the Law Revision Counsel. 11 USC 524 – Effect of Discharge A Chapter 7 discharge typically arrives a few months after filing. A Chapter 13 discharge comes only after you finish the plan payments, three to five years later. A creditor who tries to collect on a discharged debt can face sanctions for violating the order.
Several categories of debt survive bankruptcy under 11 U.S.C. § 523:13Office of the Law Revision Counsel. 11 USC 523 – Exceptions to Discharge
- Child support and alimony.
- Recent income taxes (generally 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 can show “undue hardship” in a separate court proceeding.
- Debts you did not list in your petition.
- Criminal fines and most government penalties.
Some last-minute borrowing is also presumed nondischargeable. Luxury purchases charged to a single creditor shortly before filing, or large cash advances taken in the weeks before your petition, can be treated as fraudulent and left intact.13Office of the Law Revision Counsel. 11 USC 523 – Exceptions to Discharge
Discharging student loans is possible but hard. You have to file a separate action inside your bankruptcy (an adversary proceeding) and prove undue hardship. Most federal courts apply a three-part test: you cannot maintain a minimal standard of living while repaying; the hardship will likely persist for most of the repayment period; and you have made good-faith efforts to repay.
What It Costs
The court’s filing fee is $338 for Chapter 7, $313 for Chapter 13, and $1,738 for Chapter 11. Courts can allow installment payments, and in Chapter 7 the fee may be waived entirely for filers whose income is under 150 percent of the federal poverty guidelines.
Attorney fees are usually the larger expense. A straightforward Chapter 7 typically runs $600 to $3,000. Chapter 13 tends to cost more, generally $1,800 to $7,500, because the lawyer has to draft and monitor a multi-year plan. Many Chapter 13 attorneys build their fees into the plan so you don’t pay the full amount upfront. You can file without a lawyer (pro se), but the procedural rules make mistakes expensive.
Add the two required courses, roughly $50 each, and you have the full out-of-pocket picture.
Credit and Borrowing After Bankruptcy
A bankruptcy filing can appear on your credit report for up to ten years from the date of the order for relief.14Office of the Law Revision Counsel. 15 USC 1681c – Requirements Relating to Information Contained in Consumer Reports The three major credit bureaus typically remove a Chapter 13 after seven years, since the filer repaid a portion of the debt; a Chapter 7 usually stays the full ten. Your score will be lower during that window, and credit will be more expensive.
The impact fades over time, and you can start rebuilding right after discharge. Federal mortgage programs have set waiting periods. For an FHA-insured mortgage, you must wait at least two years after a Chapter 7 discharge and show that you have re-established good credit or chosen not to take on new debt; if the bankruptcy stemmed from circumstances beyond your control, the wait can shrink to as little as 12 months. After a Chapter 13 filing, you can apply for an FHA loan after 12 months of on-time plan payments, with court permission.15U.S. Department of Housing and Urban Development. How Does a Bankruptcy Affect a Borrowers Eligibility for an FHA Mortgage