Personal bankruptcy is a federal court process for individuals who can’t pay what they owe. It works in one of two ways: Chapter 7 liquidates your non-exempt property and wipes out most qualifying debts in about four to six months, while Chapter 13 sets up a court-supervised repayment plan that runs three to five years and lets you keep your assets. The moment you file under either chapter, an automatic legal shield stops creditors from calling, suing, garnishing wages, or foreclosing while the court sorts out your case.
The Two Chapters for Individuals
Chapter 7 is the faster and more common path. A court-appointed trustee takes control of your bankruptcy estate, reviews what you own, and sells any assets that aren’t protected by exemptions. The trustee converts non-exempt property into cash and distributes the proceeds to creditors under a priority ranking set by federal law.1Office of the Law Revision Counsel. 11 USC 704 – Duties of Trustee2Office of the Law Revision Counsel. 11 USC 507 – Priorities In practice, many Chapter 7 cases are “no-asset” cases, meaning everything the filer owns falls within exemption limits and creditors receive nothing.
Once the trustee is done, the court issues a discharge that permanently eliminates your personal liability for most remaining debts. That discharge acts as a legal injunction: creditors are barred from calling you, suing you, or otherwise trying to collect on discharged amounts.3Office of the Law Revision Counsel. 11 USC 524 – Effect of Discharge
Exemptions decide what you keep. Every state has its own exemption scheme, and some states let you choose between state exemptions and the federal set listed in the Bankruptcy Code. The federal exemptions, most recently adjusted in April 2025, protect up to $31,575 in home equity, up to $5,025 in a single motor vehicle, and a wildcard of $1,675 plus up to $15,800 of any unused homestead exemption.4Office of the Law Revision Counsel. 11 USC 522 – Exemptions If your equity in a house or car exceeds the applicable limit, the trustee can sell that asset, pay you the exempt amount, and give the rest to creditors.
Chapter 13 works differently. If you have steady income and want to keep property that wouldn’t survive Chapter 7, you propose a plan that commits a portion of your future earnings to creditors over time. Filers earning below their state’s median income get a three-year plan; those above the median must commit to up to five years.5Office of the Law Revision Counsel. 11 USC 1322 – Contents of Plan A trustee collects your monthly payments and distributes them to creditors according to the plan the court approved.6United States Courts. Official Form 113 Chapter 13 Plan
Chapter 13 is particularly useful if you’re behind on a mortgage or car loan. The plan can spread out missed payments over its full term, letting you catch up without facing foreclosure or repossession. You keep your assets, but your disposable income belongs to the plan. When you complete all required payments, the court discharges the remaining balance on qualifying unsecured debts.
Not everyone qualifies for Chapter 13. You need regular income, and your debts can’t exceed statutory ceilings. For cases filed between April 1, 2025, and March 31, 2028, that means less than $526,700 in unsecured debt and less than $1,580,125 in secured debt.7Office of the Law Revision Counsel. 11 USC 109 – Who May Be a Debtor Above those limits, Chapter 13 isn’t on the table.
What Happens the Moment You File
The instant your petition hits the docket, a legal shield called the automatic stay kicks in. It stops nearly all collection activity against you without anyone needing to ask a judge. Lawsuits freeze. Wage garnishments halt. Foreclosure proceedings pause. Creditor phone calls are supposed to stop.8Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay
The stay has teeth. A creditor who knowingly violates it can be ordered to pay your actual damages, attorney fees, and in some cases punitive damages. It does have limits, though. Criminal proceedings continue regardless, and collection of domestic support obligations from property outside the bankruptcy estate is allowed. Creditors can also ask the court to lift the stay on a specific asset if they can show their interests aren’t adequately protected, such as when a car is rapidly losing value and the debtor has no equity in it.
Debts Bankruptcy Won’t Erase
Filing doesn’t wipe out everything. Certain categories of debt survive both chapters, and misunderstanding this is one of the most common reasons people feel blindsided after their case closes.
- Child support and spousal support cannot be discharged under any chapter.9Office of the Law Revision Counsel. 11 USC 523 – Exceptions to Discharge
- Most student loans stay with you. They’re only dischargeable if you file a separate lawsuit within your case and prove that repaying them would impose an “undue hardship” on you and your dependents. Most federal circuits apply a strict three-part test: you can’t maintain a minimal standard of living, your situation is unlikely to improve, and you’ve made good-faith efforts to repay.
- Recent income taxes, taxes for which you never filed a return, and taxes you tried to evade aren’t dischargeable. Older income tax debts may be dischargeable if the return was due more than three years before filing, was filed more than two years before filing, and the tax was assessed more than 240 days before filing.10Internal Revenue Service. Publication 908 – Bankruptcy Tax Guide
- Money you obtained through false pretenses, fraud, or material misrepresentation isn’t dischargeable if the creditor proves the fraud in court.
- Debts from willful injury to another person, and debts from causing death or personal injury while driving under the influence, survive discharge.
If your main reason for filing is one of these categories, bankruptcy likely won’t solve the problem. Everything else in the typical unsecured debt pile, credit cards, medical bills, personal loans, is generally dischargeable.
Who Qualifies
You can’t simply walk into court and file. Federal law imposes gatekeeping requirements that filter out filers who don’t genuinely need relief or who haven’t completed the required steps.
The Means Test
The means test decides whether you can use Chapter 7 or must file Chapter 13 instead. It compares your average monthly income over the six months before filing to the median income for a household your size in your state. Below the median, you pass automatically.11Office of the Law Revision Counsel. 11 USC 707 – Dismissal of a Case or Conversion Above the median, the test moves to a second phase that subtracts certain allowed expenses. If the remaining disposable income is high enough that you could realistically repay a meaningful portion of your debts, the court presumes Chapter 7 would be an abuse of the system, and you’ll likely need Chapter 13.
Two Required Courses
Within 180 days before filing, you must complete a credit counseling briefing from a nonprofit agency approved by the U.S. Trustee Program. The session covers alternatives to bankruptcy and walks you through a basic budget analysis. Skip it and your case gets dismissed.12U.S. Courts. Credit Counseling and Debtor Education Courses If you’re filing jointly with a spouse, both of you have to complete it independently. Sessions typically cost $10 to $50 and are available by phone or online.
A second course, called debtor education or personal financial management, is required after you file but before the court will grant your discharge. It must also come from a U.S. Trustee-approved provider. Forgetting this step is surprisingly common and can delay or derail an otherwise clean case.
If You’ve Filed Before
Prior bankruptcy discharges trigger waiting periods before you can get another one, measured from the filing date of the earlier case. Chapter 7 after Chapter 7 requires eight years. Chapter 7 after Chapter 13 requires six, with limited exceptions if you paid unsecured creditors in full or at least 70% in a good-faith best-effort plan. Chapter 13 after Chapter 7, 11, or 12 requires four years. Chapter 13 after Chapter 13 requires two.13Office of the Law Revision Counsel. 11 USC 727 – Discharge14Office of the Law Revision Counsel. 11 USC 1328 – Discharge Miss the math and the court will deny your discharge even if the rest of the case proceeds normally.
What Filing Actually Involves
The backbone of your case is Official Form 101, the Voluntary Petition for Individuals Filing for Bankruptcy.15U.S. Courts. Voluntary Petition for Individuals Filing for Bankruptcy Around it, you’ll assemble a substantial financial dossier: names, addresses, and exact amounts for every creditor; pay stubs and tax returns covering the six months before filing; a full inventory of what you own, from real estate and bank accounts to furniture, vehicles, and retirement accounts; a monthly expense breakdown; and any prior bankruptcy filing history within the last eight years.16United States Courts. Official Form 101 – Voluntary Petition for Individuals Filing for Bankruptcy You’ll also file the certificate proving you completed pre-filing credit counseling.
Accuracy matters. Omitting an asset, understating income, or leaving a creditor off the list can result in dismissal or, worse, allegations of bankruptcy fraud.
After you file, the court schedules a meeting of creditors, formally known as a Section 341 meeting. It’s not a court hearing and no judge attends. The bankruptcy trustee runs it, and you answer questions under oath about your petition, assets, income, and expenses.17U.S. Department of Justice. Section 341 Meeting of Creditors Creditors can attend and ask their own questions, though in most consumer cases few show up. Bring a government-issued photo ID and proof of your Social Security number, such as a Social Security card, pay stub, or W-2.18U.S. Department of Justice. Instructions for Proper Identification at 341 Meeting Without those documents, the meeting gets rescheduled. Almost all 341 meetings are now held virtually through Zoom.
The court filing fee is $338 for Chapter 7 and $313 for Chapter 13, set by federal statute and identical nationwide. If your household income falls below 150% of the federal poverty line, the court may waive the Chapter 7 filing fee entirely.19U.S. Department of Justice. Notice to Chapter 7 Trustees re Bankruptcy Filing Fee Waivers Both fees can also be paid in installments. Attorney fees vary by region and complexity, but most Chapter 7 cases cost roughly $1,000 to $2,000 in legal fees, and Chapter 13 runs higher because the attorney handles the repayment plan over several years. You can file without an attorney, but the technicality of bankruptcy law means pro se filers face a meaningfully higher risk of procedural mistakes that delay or kill their case.
The Credit Aftermath
A Chapter 7 bankruptcy stays on your credit report for up to ten years from the filing date. Chapter 13 typically remains for seven. During that window, the bankruptcy is visible to any lender, landlord, or employer who pulls your credit, and it will significantly lower your score, particularly in the first two to three years.
The practical impact starts fading well before the mark drops off your report. Many people see meaningful score improvement within 12 to 18 months of discharge by using secured credit cards responsibly and keeping new accounts current. Government-backed mortgage programs have defined waiting periods: FHA and VA loans generally require a two-year wait after a Chapter 7 discharge, while Chapter 13 filers with a strong payment history on their plan may qualify for certain loans before the plan concludes. Conventional mortgages typically impose longer waiting periods of four years or more. For someone drowning in debt they can’t realistically repay, the post-bankruptcy credit trajectory is often better than the alternative of carrying accounts in default and collections for years.