Understanding Bankruptcy: Your Complete Guide
Get expert information on Chapter 7 and Chapter 13 bankruptcy, free calculators, state-specific guides, and connect with qualified attorneys.
What is Bankruptcy?
Bankruptcy is a legal process that helps individuals and businesses eliminate or repay their debts under the protection of federal bankruptcy court. When you file for bankruptcy, an automatic stay immediately stops most creditors from pursuing collection activities, including lawsuits, wage garnishments, and harassing phone calls.
There are two main types of personal bankruptcy in the United States: Chapter 7 and Chapter 13. Each serves different financial situations and offers distinct benefits. Understanding which type of bankruptcy is right for you depends on your income, assets, debts, and long-term financial goals.
Who Should Consider Bankruptcy?
Bankruptcy may be the right solution if you:
- Have overwhelming debt that you cannot repay within a reasonable timeframe
- Are facing wage garnishment or bank account levies
- Are at risk of losing your home to foreclosure
- Are being sued by creditors
- Have medical bills, credit card debt, or personal loans you cannot manage
- Need protection from creditor harassment
- Want to stop a vehicle repossession
- Need a fresh financial start
Chapter 7 vs. Chapter 13: Quick Comparison
| Feature | Chapter 7 Bankruptcy | Chapter 13 Bankruptcy |
|---|---|---|
| Also Known As | Liquidation Bankruptcy | Wage Earner's Plan / Reorganization |
| Who Qualifies | Must pass means test (income below state median or limited disposable income) | Must have regular income and debts below statutory limits |
| Debt Discharge | Most unsecured debts eliminated in 3-4 months | Debts repaid through 3-5 year payment plan, remainder discharged |
| Asset Protection | Non-exempt assets may be sold by trustee | Keep all assets while making payments |
| Timeline | 3-4 months from filing to discharge | 3-5 years of payments before discharge |
| Credit Impact | Remains on credit report for 10 years | Remains on credit report for 7 years |
| Stop Foreclosure | Temporary delay only | Can catch up on missed mortgage payments |
| Cost | $338 filing fee + attorney fees ($1,000-$3,000) | $313 filing fee + attorney fees ($2,500-$6,000) |
| Best For | Those with little income and few assets | Those with regular income who want to keep assets |
Am I Eligible for Bankruptcy?
Income Test
For Chapter 7, your income must be below your state's median income for your household size, or you must have limited disposable income after allowable expenses.
Credit Counseling
You must complete an approved credit counseling course within 180 days before filing bankruptcy. This typically costs $10-50 and can be done online.
Previous Bankruptcies
If you've filed bankruptcy before, you must wait a certain period before filing again: 8 years for another Chapter 7, or 4 years for Chapter 13 after Chapter 7.
Quick Eligibility Check
Answer these questions to see if bankruptcy might be right for you:
Your total unsecured debt (credit cards, medical bills, personal loans):
✓ Less than $10,000 → Consider debt settlement or consolidation
✓ $10,000 - $50,000 → Bankruptcy may be an option
✓ Over $50,000 → Strongly consider bankruptcy consultation
Can you pay your debts within 5 years?
If no, bankruptcy may provide relief.
Are you current on secured debts (mortgage, car)?
If no, Chapter 13 may help you catch up.
Free Bankruptcy Tools & Resources
Means Test Calculator
Determine if you qualify for Chapter 7 bankruptcy based on your income, household size, and state of residence.
Calculate Now →Exemption Calculator
See what property you can protect in bankruptcy using federal or state exemptions.
Check Exemptions →State Guides
Get state-specific bankruptcy information including exemptions, median incomes, and local courts.
Browse States →Bankruptcy Glossary
Understand bankruptcy terms with our comprehensive glossary of over 50 definitions.
View Glossary →Debt Assessment Quiz
Take our quiz to understand your options and whether bankruptcy is the right choice.
Take Quiz →Find an Attorney
Connect with qualified bankruptcy attorneys in your area for a free consultation.
Search Attorneys →Common Bankruptcy Questions
Will I lose everything if I file bankruptcy?
No. Bankruptcy exemptions protect essential assets like your home (up to a certain equity amount), vehicle, retirement accounts, household goods, and clothing. In Chapter 7, most people keep all their property because it's exempt. In Chapter 13, you keep all your property while making payments. Learn more about exemptions.
Can I keep my car and house?
In most cases, yes. If you're current on your car and mortgage payments, and your equity in these assets is protected by exemptions, you can keep them. Chapter 13 is especially helpful if you're behind on payments, as it allows you to catch up over 3-5 years. Keep your house | Keep your car.
Will bankruptcy stop wage garnishment?
Yes, immediately. When you file bankruptcy, an automatic stay goes into effect that stops virtually all collection activities, including wage garnishments, lawsuits, and creditor calls. Stop wage garnishment.
How long does bankruptcy stay on my credit report?
Chapter 7 bankruptcy remains on your credit report for 10 years from the filing date. Chapter 13 bankruptcy remains for 7 years from the filing date. However, many people can rebuild their credit and qualify for new credit within 1-2 years after bankruptcy. Rebuild your credit.
Can I file bankruptcy on medical bills?
Yes. Medical bills are unsecured debt and can be fully discharged in both Chapter 7 and Chapter 13 bankruptcy. Medical debt is one of the most common reasons people file for bankruptcy. Medical debt bankruptcy.
Do I need a lawyer to file bankruptcy?
While you can file bankruptcy without a lawyer (called "pro se"), it's generally not recommended. Bankruptcy law is complex, and mistakes can result in your case being dismissed or losing assets you could have protected. Most people hire a bankruptcy attorney. Filing without a lawyer | Find an attorney.
Ready to Take the Next Step?
Use our free means test calculator to see if you qualify for Chapter 7 bankruptcy, or connect with a qualified attorney in your area for a free consultation.