Bankruptcy in the United States is a federal court process that lets a person or business either erase most debts by giving up non-exempt property or restructure what they owe through a court-supervised repayment plan. Every case runs under Title 11 of the U.S. Code, and no state court can hear one.1Office of the Law Revision Counsel. 28 U.S. Code 1334 – Bankruptcy Cases and Proceedings Congress built the system on its constitutional power to write uniform bankruptcy laws for the whole country,2Library of Congress. Constitution Annotated – ArtI.S8.C4.2.1 and the point of it is straightforward: give honest debtors a real fresh start while splitting whatever assets are available fairly among creditors.
The Chapters and Which One Fits
The Bankruptcy Code sorts relief into chapters, each aimed at a different situation. For most individuals, the choice is between Chapter 7 and Chapter 13.
Chapter 7 Liquidation
Chapter 7 is the fastest and most common form of consumer bankruptcy. A court-appointed trustee reviews everything you own, sells any property not protected by an exemption, and pays creditors from the proceeds.3United States Courts. Chapter 7 – Bankruptcy Basics In practice, most Chapter 7 cases are “no-asset” cases: exemptions cover the debtor’s property fully, and the trustee has nothing to sell. Qualifying unsecured debts are wiped out at the end. From petition to discharge, the whole thing usually takes about four months.
Chapter 13 Repayment Plan
Chapter 13 works differently. Instead of selling assets, you propose a repayment plan lasting three to five years, keep your property, and pay a trustee monthly for distribution to creditors.4United States Courts. Chapter 13 – Bankruptcy Basics Homeowners behind on their mortgage often choose Chapter 13 because it lets them cure the arrears through the plan while keeping the house. You need regular income to qualify.
Chapters 11 and 12
Chapter 11 is used mainly by corporations and partnerships that want to keep operating while restructuring, though individuals with debts too large for Chapter 13 sometimes file under it as well. It is considerably more expensive and complex.5United States Courts. Chapter 11 – Bankruptcy Basics Chapter 12 is a streamlined repayment option limited to family farmers and family fishermen with regular annual income.6United States Courts. Chapter 12 – Bankruptcy Basics
Who Qualifies
Federal law imposes several gatekeeping requirements before you can file, and the chapter you want determines what those look like.
Credit Counseling Before You File
Before filing any bankruptcy petition, you must complete a credit counseling session with a nonprofit agency approved by the U.S. Trustee Program. The session has to happen within the 180 days before you file.7Office of the Law Revision Counsel. 11 U.S.C. 109 – Who May Be a Debtor Skip this step and the court will dismiss your case.8United States Department of Justice. Credit Counseling and Debtor Education Information A narrow exception exists if you can show exigent circumstances and tried to get counseling but couldn’t within seven days, though the court will still require you to finish within 30 days of filing (with a possible 15-day extension for cause). Sessions typically cost $10 to $100, and many providers deliver them online or by phone.
The Means Test for Chapter 7
Chapter 7 filers must pass the means test, the law’s way of screening out people who could actually afford to repay some of what they owe. You take your average monthly income over the six months before filing and compare it to the median income for a household of your size in your state.9United States Department of Justice. Means Testing The U.S. Trustee Program publishes updated median income figures; the most recent tables took effect on April 1, 2026.10United States Department of Justice. Median Family Income Data – On or After April 1, 2026
Below the median, you pass and can proceed with Chapter 7. Above it, the test moves to a second phase: you subtract IRS-approved living expenses and other allowed costs from your income. If the remainder is still too high, a “presumption of abuse” arises and you’ll likely need to file Chapter 13 instead. The math is documented on Official Form 122A-1.11United States Courts. Means Test Forms
Chapter 13 Debt Limits
Chapter 13 has its own barrier: your debts can’t be too large. As of 2026, you can only file under Chapter 13 if your noncontingent, liquidated unsecured debts are below $526,700 and your noncontingent, liquidated secured debts are below $1,580,125.7Office of the Law Revision Counsel. 11 U.S.C. 109 – Who May Be a Debtor These limits are adjusted periodically for inflation. Above them, Chapter 11 is the remaining reorganization option.
Where You File
You file in the bankruptcy court for the federal district where you’ve lived for the greater part of the 180 days before filing, meaning at least 91 of those 180 days.12Office of the Law Revision Counsel. 28 U.S. Code 1408 – Venue of Cases Under Title 11 The rule stops people from relocating to a friendlier district right before filing.
What You Get to Keep
Exemptions decide what stays with you. Every state has its own exemption laws, and roughly a third of states also let you choose between state exemptions and the federal bankruptcy exemptions. The rest require state exemptions only. Which system applies depends on the state where you’ve been domiciled for the two years before filing, so check this early.
The federal exemptions, adjusted most recently on April 1, 2025, protect these amounts of equity:13Office of the Law Revision Counsel. 11 U.S.C. 522 – Exemptions
- Homestead: up to $31,575 in equity in your primary residence.
- Motor vehicle: up to $5,025 in equity.
- Household goods: up to $800 per item, with an aggregate cap of $16,850.
- Jewelry: up to $2,125.
- Tools of the trade: up to $3,175 for tools, books, and equipment used in your work.
- Wildcard: $1,675 applied to any property of your choosing, plus up to $15,800 of any unused portion of the homestead exemption.
- Retirement accounts: IRAs and similar accounts exempt up to $1,711,975 in aggregate.
Married couples filing jointly can double these federal amounts.14NCLC Digital Library. April 1 Increase of Federal Bankruptcy Exemptions, Other Dollar Amounts The wildcard is where planning matters most. If you’re a renter with no homestead equity to protect, you can stack the unused homestead portion onto the wildcard and shield up to $17,475 of any property you choose. Some state exemptions are far more generous than the federal ones for specific assets, such as the unlimited homestead exemptions in Florida and Texas, so the comparison is worth doing carefully.
When you list assets on your schedules, you report current replacement value, not original purchase price. For a used car, that’s what it would cost to buy a comparable vehicle in similar condition. Getting valuations right matters because the trustee will scrutinize them, and undervaluing property can create serious problems.
Filing, Fees, and the Automatic Stay
You file your petition package with the clerk of the bankruptcy court. The filing fee is $338 for Chapter 7, $313 for Chapter 13, and $571 for Chapter 11.15United States Bankruptcy Court. Filing Fees If you can’t pay up front, you can apply for installments or, in Chapter 7 cases, a fee waiver based on income. Attorney fees are separate.
The primary filing document is Official Form 101, the Voluntary Petition for Individuals Filing for Bankruptcy.16United States Courts. Voluntary Petition for Individuals Filing for Bankruptcy Along with it, you complete schedules itemizing assets, debts, income, expenses, and recent financial transactions. Everything is signed under penalty of perjury. The statute requires copies of all pay stubs or other payment records received within 60 days before filing,17Office of the Law Revision Counsel. 11 U.S.C. 521 – Debtor’s Duties plus the most recent year’s tax return for the trustee.3United States Courts. Chapter 7 – Bankruptcy Basics You’ll also need bank statements as of the filing date, vehicle titles and loan statements, mortgage documents, credit card statements, medical bills, and any records of lawsuits or judgments. Recent large payments to creditors, property transfers, and gifts have to be disclosed too. If you have a non-filing spouse, their earnings still count as household income for disclosure.
The moment your petition hits the clerk’s office, the automatic stay takes effect. This is one of the most powerful features of bankruptcy law. Virtually all collection activity against you stops immediately: lawsuits, wage garnishments, foreclosure proceedings, repossessions, and creditor phone calls.18Office of the Law Revision Counsel. 11 U.S.C. 362 – Automatic Stay Creditors who violate the stay can face sanctions.
Weaker Stay for Repeat Filers
The stay gets thinner if a prior case was dismissed recently. If you had a bankruptcy dismissed within the past year and file again, the new stay expires after just 30 days unless you convince the court to extend it by showing good faith.18Office of the Law Revision Counsel. 11 U.S.C. 362 – Automatic Stay If two or more cases were dismissed in the prior year, you get no automatic stay at all when the new case is filed. You can ask the court to impose one, but you carry the burden of proving good faith.
After Filing: The 341 Meeting
Once your case is filed, the trustee schedules a Meeting of Creditors, commonly called the 341 meeting. In Chapter 7, it generally happens 21 to 40 days after filing; in Chapter 13, the window extends to 50 days. You attend, answer questions under oath about your assets, income, and the accuracy of your petition, and present a photo ID and proof of your Social Security number.19United States Department of Justice. Section 341 Meeting of Creditors Despite the name, creditors rarely show up unless they suspect hidden assets or fraud. The meeting is usually brief and run by the trustee, not a judge.
Some cases pick up adversary proceedings, which are separate lawsuits filed inside the bankruptcy. A creditor might argue that a specific debt should survive because it was obtained through fraud. A trustee might sue to claw back property transferred to a family member shortly before filing, or to unwind payments that gave one creditor an unfair edge over others. These proceedings follow their own rules and can extend a case considerably.
Debts That Survive Bankruptcy
Not everything gets wiped out. Federal law carves out specific categories of debt that cannot be discharged regardless of which chapter you file.20Office of the Law Revision Counsel. 11 U.S. Code 523 – Exceptions to Discharge
- Child support and alimony survive bankruptcy unconditionally.
- Recent income taxes are not dischargeable. Tax debts older than three years may be dischargeable in some circumstances, but only if the returns were filed on time and the debtor didn’t commit fraud or willful evasion.21Internal Revenue Service. Declaring Bankruptcy
- Student loans survive unless you prove repayment would impose an “undue hardship” on you and your dependents, which requires a separate adversary proceeding. Department of Justice guidance updates in 2022 and 2024 made the analysis somewhat more practical, but the process remains difficult.
- Debts obtained through false pretenses or a materially false financial statement survive. Luxury purchases over $500 made within 90 days of filing and cash advances over $750 taken within 70 days are presumed fraudulent.
- Liability for death or personal injury caused by driving under the influence cannot be discharged.
- Criminal fines, penalties, and restitution survive.
- Debts for willful and malicious injury to a person or property are not dischargeable.
The fraud-presumption thresholds trip people up. Running up a credit card right before filing looks like a plan to defraud creditors, and the Bankruptcy Code treats it that way.
Keeping a Secured Debt: Reaffirmation
If you want to keep paying a secured debt, like a car loan, the lender may ask you to sign a reaffirmation agreement. By signing, you voluntarily stay personally liable for that debt even after your discharge, and in return the lender agrees not to repossess as long as you keep paying.22Southern District of Florida, United States Bankruptcy Court. Reaffirmation Agreement
The law adds protections. The agreement must be filed with the court before discharge is entered. If you had an attorney during the negotiation, the attorney has to certify that the agreement doesn’t impose an undue hardship and that you were fully informed. Without an attorney, the court must approve it directly. You also have 60 days to rescind after it’s filed, or until discharge is entered, whichever comes later.23Office of the Law Revision Counsel. 11 U.S. Code 524 – Effect of Discharge Think carefully before signing. Default later and the creditor can come after you personally just as if you never filed.
Getting the Discharge and Life After
Before the court will issue a discharge, you have to complete a second mandatory course: a personal financial management class, often called debtor education. This is separate from the pre-filing credit counseling. Skip it and the discharge is blocked.24Office of the Law Revision Counsel. 11 U.S.C. 727 – Discharge The course takes roughly two hours, is available online, and runs $10 to $100 through approved providers.
In Chapter 7, the discharge order typically arrives about 60 to 90 days after the date first set for the 341 meeting, assuming no one objects.25United States Courts. Discharge in Bankruptcy – Bankruptcy Basics Chapter 13 discharges come at the end of the repayment plan, three to five years after filing.
Credit Report Impact
A bankruptcy filing stays on your credit report for up to 10 years from the date the order for relief is entered.26Office of the Law Revision Counsel. 15 U.S.C. 1681c – Requirements Relating to Information Contained in Consumer Reports In practice, the major credit bureaus remove Chapter 13 cases after seven years, though the statute permits reporting for the full ten. The hit to your credit score is significant at first and eases over time, especially if you rebuild with secured credit cards or small installment loans after discharge.
Tax Treatment of Discharged Debt
Debt eliminated through bankruptcy is not taxable income. Normally, when a creditor forgives a debt, the IRS treats the forgiven amount as income and you owe tax on it. Bankruptcy is a specific statutory exception.27Internal Revenue Service. Bankruptcy Tax Guide – Publication 908 The canceled debt can, however, reduce certain other tax attributes you’d otherwise be entitled to, like net operating loss carryovers, so the tax picture isn’t completely neutral.
When a Case Gets Dismissed
A case can be dismissed for several reasons: failing to file required documents, failing to complete credit counseling, not making Chapter 13 plan payments, or abuse of the process. Dismissal is not the same as discharge. It means the case ends without eliminating any debts, and your creditors can resume collection immediately.
If your case is dismissed with prejudice, you’re barred from refiling for 180 days. Even a dismissal without prejudice can weaken the automatic stay in any future case, as described above. A voluntary dismissal after a creditor has already filed a motion for relief from the stay can also limit your ability to refile. Incomplete paperwork, missed deadlines, and failure to attend the 341 meeting are the most common reasons cases fall apart, and every one of them is preventable.