US Bankruptcy Code: Chapters, Means Test, and Discharge

The US Bankruptcy Code is the federal law, found in Title 11 of the United States Code, that governs how individuals and businesses resolve debts they cannot pay. It sets the uniform rules every bankruptcy case follows, no matter which state you file in.¹ Congress writes those rules under Article I, Section 8 of the Constitution, which gives it the power to make “uniform Laws on the subject of Bankruptcies throughout the United States.”² The Code’s goal is practical: give an honest debtor a genuine fresh start while treating creditors as fairly as the situation allows.

The Chapters and Who Uses Each

Title 11 is divided into chapters, and the chapter you file under determines almost everything else about your case: whether you keep your property, how long the process takes, what it costs, and what debts walk away with you.

Chapter 7: Liquidation

Chapter 7 is the fastest and most common consumer bankruptcy. A court-appointed trustee reviews what you own, sells anything that isn’t protected by an exemption, and distributes the proceeds to creditors. In return, you receive a discharge that wipes out most unsecured debt like credit cards and medical bills.³ In practice, the vast majority of consumer Chapter 7 filings are “no-asset” cases: everything the debtor owns is covered by exemptions and nothing gets sold.

The court filing fee totals $338, broken into a $245 case fee, a $78 administrative fee, and a $15 trustee surcharge.⁴ Attorney fees on top of that typically run $800 to $3,000, depending on complexity and local market rates. From filing to discharge usually takes about four months.

Chapter 13: Repayment Plan

Chapter 13 works for people with regular income who want to keep their property. Instead of liquidating, you propose a three-to-five-year plan that repays some or all of your debts over time.⁵ This chapter is popular with homeowners trying to cure a delinquent mortgage, because the plan can spread missed payments across years while you stay in the house.

Eligibility requires that unsecured debts fall below $526,700 and secured debts stay under $1,580,125.⁶ The filing fee is $313, and attorney fees commonly range from $4,500 to $8,500, often paid through the plan itself rather than up front.

Chapter 11: Reorganization

Chapter 11 lets businesses, and occasionally individuals with large or complex debt loads, keep operating while restructuring their obligations. The debtor proposes a plan explaining how it will repay creditors, renegotiate contracts, and return to viability. Airlines, retail chains, and other large corporations use traditional Chapter 11. Smaller businesses can use Subchapter V, a streamlined version with faster deadlines and lower costs, available when combined debts don’t exceed $3,424,000 and at least half of that debt comes from business activity.⁷

Specialized Chapters

Three chapters handle narrower situations. Chapter 9 allows municipalities, cities, counties, and school districts, to restructure. Chapter 12 is tailored for family farmers and commercial fishermen with regular income, with repayment flexibility suited to seasonal cash flow.⁸ Chapter 15 governs cross-border insolvency when a debtor’s assets or creditors are spread across multiple countries.⁹

Who Qualifies for Chapter 7: The Means Test

Not everyone who wants Chapter 7 can file it. The means test exists to push people who could repay a meaningful amount into Chapter 13 instead.

The first step compares your average monthly income over the six months before filing to the median income for a household of your size in your state. If your income is below the median, you pass and can file Chapter 7 without further analysis.³

If your income is above the median, the second step subtracts certain allowed expenses from your income to calculate what you could theoretically pay creditors each month. Those expenses aren’t your actual spending. They’re standardized amounts the IRS publishes for housing, transportation, food, and other necessities.¹⁰ If the math shows you have enough disposable income to fund a repayment plan, your Chapter 7 filing is presumed abusive and will likely be converted to Chapter 13 or dismissed. The same IRS standards also help set your monthly payment under a Chapter 13 plan.

Required Credit Counseling and Debtor Education

Before an individual can file any bankruptcy case, you have to complete a credit counseling session with a nonprofit agency approved by the U.S. Trustee Program. The session must happen within 180 days before you file, and the certificate goes in with your petition.⁶ A court can grant a short exemption during an emergency, but you’ll still need to complete the session within 30 days of filing, with a possible 15-day extension for good cause. Permanent exemptions exist only for disability, mental illness, or active military service in a combat zone.

A second course comes after filing. To actually receive the discharge, you must complete a debtor education course on personal financial management from an approved provider, and the certificate must reach the court before any debts are wiped.¹¹ Skipping either course can derail an entire case, and a surprising number of filings run into trouble here.

The Automatic Stay: What Happens the Moment You File

The second your bankruptcy petition is filed, a legal shield called the automatic stay takes effect. It stops creditors from collecting debts, garnishing wages, repossessing vehicles, foreclosing on homes, and pursuing most money lawsuits.¹² Creditors don’t need notice first; the stay applies instantly. For most people, this is the most immediate benefit of filing.

Creditors who knowingly violate the stay can be ordered to pay the debtor’s actual damages and attorney fees, and courts can tack on punitive damages for particularly egregious conduct. A secured creditor can ask the court to lift the stay by showing its interest in the property isn’t adequately protected, such as when a car is losing value and the debtor isn’t paying or insuring it.

Some things the stay doesn’t touch. Criminal proceedings continue. Collection of child support and alimony continues. Tax audits and deficiency notices continue.¹² Government actions to protect public health or safety also aren’t affected. And the Code limits serial filers: if your previous case was dismissed within the last year, the stay in your new case expires after 30 days unless the court finds good faith; if two or more prior cases were dismissed in the past year, no stay takes effect at all without a specific court order.

Property You Get to Keep: Exemptions

Bankruptcy doesn’t mean losing everything. Exemptions let you shield certain property from creditors and the trustee. As of April 1, 2025, the federal bankruptcy exemptions, which are adjusted for inflation every three years, protect:

Up to $31,575 in equity in your primary residence (homestead).
Up to $5,025 in equity in one motor vehicle.
Up to $800 per item and $16,850 total in household goods such as furniture, appliances, and clothing.
Up to $2,125 in personal jewelry.
A wildcard of $1,675 in any property, plus up to $15,800 of any unused homestead portion.
Up to $3,175 in tools of the trade and professional books.

Married couples filing jointly can double each amount.¹³ The wildcard is especially useful because it applies to any property, and the unused-homestead piece lets renters and people without home equity shield a meaningful amount of other assets.

Your state determines whether you use the federal list, a state list, or get to pick. You cannot mix items from both. Roughly half the states let debtors choose; the rest require state exemptions. Qualified retirement accounts, including 401(k)s, 403(b)s, and pensions, are fully protected under federal law regardless of which system applies. Traditional and Roth IRAs are protected up to roughly $1.5 million.

The Trustee and the Bankruptcy Estate

Filing creates a legal entity called the bankruptcy estate. The estate owns, on paper, all of your property as of the filing date: real estate, bank accounts, vehicles, pending tax refunds, even the right to pursue lawsuits.¹⁴ You list every asset on detailed schedules filed with the court. Leaving something off, deliberately or not, can jeopardize the entire case.

The U.S. Trustee Program appoints a bankruptcy trustee to manage the estate. In Chapter 7, the trustee identifies non-exempt assets, sells them, and distributes the cash to creditors in the priority order the Code sets. The trustee can also claw back certain pre-filing payments. Under the preference rules, transfers made within 90 days before filing to ordinary creditors, or within one year to insiders like family or business partners, can be reversed if they gave that creditor more than it would have received in the bankruptcy.¹⁵ Paying back a parent or sibling right before filing is the kind of move trustees catch routinely.

In Chapter 13, the trustee collects monthly plan payments and distributes them to creditors, and reviews your records to confirm the plan is feasible. Both Chapter 7 and Chapter 13 trustees run the meeting of creditors, a mandatory session where you answer questions under oath about your finances. Despite the name, creditors rarely show up in routine consumer cases.¹⁶

Keeping Secured Property: Reaffirmation Agreements

In Chapter 7, secured debts like a car loan or mortgage are technically eligible for discharge along with everything else. But if you want to keep the collateral, you may need to sign a reaffirmation agreement. That agreement is a new contract making you personally liable for the debt again, even after the discharge. It must be filed with the court before discharge and must clearly disclose that signing is voluntary and not required by law.¹⁷

If you have an attorney, they must certify the agreement doesn’t create undue hardship and that you understand the consequences. If you’re filing without a lawyer, the court must find the agreement is in your best interest. You can cancel it any time before discharge, or within 60 days after it’s filed with the court, whichever is later. Reaffirmation is a calculated risk: you keep the car, but if you later default, the creditor can repossess and sue you for any shortfall, with no bankruptcy protection left to use.

The Discharge and the Debts That Survive It

The discharge is the payoff. It’s a court order that permanently eliminates your personal liability for covered debts and bars creditors from ever collecting on them again, with no more lawsuits, phone calls, or letters. In Chapter 7, discharge typically arrives about four months after filing. In Chapter 13, it arrives at the end of the three-to-five-year plan.

Debts That Survive Bankruptcy

Some obligations cannot be discharged under any chapter:

Domestic support obligations, meaning child support and alimony.
Debts obtained through fraud, false pretenses, or misrepresentation. Luxury purchases over $500 made within 90 days of filing and cash advances over $750 within 70 days are presumed non-dischargeable.
Debts arising from willful injury to another person or their property.
Criminal fines, restitution, and most government-imposed penalties.
Recent tax debts and taxes tied to fraudulent or unfiled returns.
Student loans, unless the debtor proves undue hardship.

If a creditor believes a particular debt should survive, it has to file a challenge inside the bankruptcy case before the deadline.¹⁸

Tax Debt

Many people assume all tax debt survives bankruptcy. Older income taxes can actually be discharged under specific conditions. Generally the tax must relate to a return originally due at least three years before filing, and the return must have been filed on time or at least two years before the petition. The IRS also requires that returns for the four most recent tax years be filed before any tax discharge is available.¹⁹ Taxes tied to a fraudulent return or willful evasion are never dischargeable.

Student Loans

Student loans can be discharged, but only if you prove in a separate court proceeding that repayment would impose an “undue hardship.” Most courts evaluate the claim with the Brunner test, which asks whether you can maintain a minimal standard of living while repaying, whether your financial situation is likely to persist for a significant portion of the repayment period, and whether you’ve made a good-faith effort to repay. Meeting all three has historically been a high bar. In late 2022, the Department of Justice issued guidance directing its attorneys to take a less adversarial approach in these cases and to use a standardized process for evaluating hardship.²⁰ That has opened the door somewhat, though discharge remains far from automatic.

When Discharge Is Denied Entirely

A court can refuse to grant any discharge at all, not just block specific debts, if the debtor engaged in dishonest conduct. Grounds include hiding or destroying assets, falsifying records, lying under oath, or failing to explain where assets went.²¹ The fresh start the Code promises is reserved for honest debtors. What looks like a small omission on the schedules can turn into a complete denial of relief.

How Soon You Can File Again

The Code limits how soon you can receive another discharge after a prior bankruptcy. The waiting periods run from the filing date of the earlier case, not the discharge date:

Chapter 7 after a prior Chapter 7: eight years.²¹
Chapter 13 after a prior Chapter 7: four years.
Chapter 13 after a prior Chapter 13: two years.
Chapter 7 after a prior Chapter 13: six years, unless the earlier plan paid at least 70 percent of unsecured claims in good faith, in which case no wait applies.

Filing before the waiting period expires won’t necessarily get your case tossed, but the court will deny the discharge. You’d go through the whole process, trustee review, creditor meeting, and all the associated costs, without clearing any debt.

Life After Discharge: Credit and Future Borrowing

A bankruptcy filing stays on your credit report for up to 10 years from the filing date under the Fair Credit Reporting Act, though the three major credit bureaus typically remove Chapter 13 filings after seven years.²² During that window, the filing affects interest rates and credit approvals, and can show up in some job applications and rental decisions. The credit score hit is most severe in the first two years and fades gradually.

Mortgage lenders have their own waiting periods layered on top of credit reporting. FHA-insured loans require at least a two-year wait after Chapter 7 discharge, and that can drop to 12 months if the bankruptcy stemmed from circumstances beyond the borrower’s control.²³ VA loans follow a similar two-year rule. Conventional loans backed by Fannie Mae or Freddie Mac generally require a four-year wait. During a Chapter 13 plan, some lenders will approve a mortgage after at least 12 months of on-time plan payments and court permission to take on new debt.

1
Office of the Law Revision Counsel. Title 11 – Bankruptcy
2
Constitution Annotated. ArtI.S8.C4.2.1 Overview of Bankruptcy Clause
3
United States Courts. Chapter 7 – Bankruptcy Basics
4
United States Courts. Bankruptcy Court Miscellaneous Fee Schedule
5
United States Courts. Chapter 13 Bankruptcy Basics
6
Office of the Law Revision Counsel. 11 USC 109 – Who May Be a Debtor
7
United States Courts. Chapter 11 – Bankruptcy Basics
8
United States Courts. Chapter 12 – Bankruptcy Basics
9
Office of the Law Revision Counsel. 11 USC Chapter 15 – Ancillary and Other Cross-Border Cases
10
United States Department of Justice. Means Testing
11
United States Courts. Credit Counseling and Debtor Education Courses
12
Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay
13
Office of the Law Revision Counsel. 11 USC 522 – Exemptions
14
Office of the Law Revision Counsel. 11 USC 541 – Property of the Estate
15
Office of the Law Revision Counsel. 11 USC 547 – Preferences
16
United States Department of Justice. Section 341 Meeting of Creditors
17
Office of the Law Revision Counsel. 11 USC 524 – Effect of Discharge
18
Office of the Law Revision Counsel. 11 USC 523 – Exceptions to Discharge
19
Internal Revenue Service. Declaring Bankruptcy
20
United States Department of Justice. Student Loan Guidance
21
Office of the Law Revision Counsel. 11 USC 727 – Discharge
22
Office of the Law Revision Counsel. 15 USC 1681c – Requirements Relating to Information Contained in Consumer Reports
23
U.S. Department of Housing and Urban Development. How Does a Bankruptcy Affect a Borrowers Eligibility for an FHA Mortgage