Bankruptcy Basics: Complete Guide to Debt Relief

Bankruptcy is a powerful legal tool that eliminates debts you cannot repay. If you’re drowning in debt, bankruptcy offers a path to financial freedom.

You can wipe out credit card bills, medical debt, and personal loans. The process gives you a fresh start when other options fall short.

Qualify for Chapter 7 and Eliminate Your Debt

Find out if you qualify for Chapter 7 bankruptcy and can eliminate credit card debt, medical bills, and personal loans in just 4-6 months. Speak with a bankruptcy attorney for free today.

Check If You Qualify

What Is Bankruptcy?

Bankruptcy helps people eliminate or reorganize overwhelming debts through the legal system. Chapter 7 and Chapter 13 are the most common types for individuals.

Chapter 7 erases eligible debts in just a few months. Chapter 13 requires a repayment plan but protects valuable assets like your home.

Both types stop creditor harassment immediately through an automatic stay. Speak with a bankruptcy attorney for free to explore your options.

Types of Bankruptcy Explained

Six bankruptcy chapters exist, but most people file Chapter 7 or Chapter 13.

Chapter 7 Bankruptcy

Chapter 7 liquidation wipes out most unsecured debts without repayment. It works best for people with limited assets and low income.

Your eligible debts disappear within 4-6 months of filing. Most people keep all their property through exemption protections.

Chapter 13 Bankruptcy

Chapter 13 creates a 3-5 year repayment plan for your debts. You can catch up on missed mortgage or car payments.

Your assets stay protected throughout the repayment period. Remaining eligible debts get discharged after plan completion.

Other Bankruptcy Types

Businesses can file Chapter 11 to reorganize operations and debts. Farmers use Chapter 12 for agricultural debt restructuring.

Municipalities file Chapter 9 bankruptcy when facing financial crisis. Chapter 15 handles international bankruptcy cases.

How Much Does Bankruptcy Cost?

Filing bankruptcy can cost anywhere from $0 to $3,000 or more. The total depends on your situation and whether you hire an attorney.

Chapter 7 filing fees are $338, while Chapter 13 costs $313. You may qualify for fee waivers based on income level.

Credit counseling courses cost $10-50 each, but waivers are available. Attorney fees range from $1,000 to $3,500 for most cases.

Many people successfully file Chapter 7 without an attorney. Complex cases benefit from professional legal guidance.

Filing Requirements for Chapter 7

You must pass the means test to qualify for Chapter 7. Your income must fall below your state’s median for similar households.

Higher earners can still qualify if monthly expenses exceed income. You’ll need to complete a credit counseling course before filing.

You cannot have had a bankruptcy dismissed within 180 days. Previous Chapter 7 discharges require an 8-year waiting period.

Required Bankruptcy Forms

Chapter 7 requires 23 official bankruptcy forms in your petition packet. Forms list your debts, assets, income, and monthly expenses.

Most information comes from documents you already possess at home. Bank statements, pay stubs, and tax returns provide necessary details.

Courts require accuracy in all reported financial information. Mistakes can delay your case or trigger trustee scrutiny.

The Bankruptcy Filing Process

Filing bankruptcy follows a structured timeline with key milestones.

Before You File

Complete the mandatory credit counseling course within 180 days of filing. Gather financial documents covering the past two years.

List all creditors, debts, assets, income, and expenses accurately. Determine which property exemptions protect your belongings.

Filing Your Petition

Submit your bankruptcy petition and forms to the bankruptcy court. Pay the filing fee or request a fee waiver if eligible.

The automatic stay takes effect immediately upon filing. Creditors must stop all collection attempts right away.

The 341 Meeting of Creditors

You’ll attend a brief meeting with the bankruptcy trustee 20-40 days after filing. The trustee reviews your paperwork and asks basic questions.

Most meetings last just 10-15 minutes for straightforward cases. Creditors rarely attend despite the meeting’s name.

Bring your photo ID and Social Security card to the meeting. Answer all questions honestly and directly.

After the Meeting

Complete the debtor education course after your 341 meeting. Submit your certificate of completion to the court.

The trustee reviews your case for non-exempt assets to sell. Most Chapter 7 cases involve no asset sales.

You’ll receive your discharge order 60-90 days after the meeting. The discharge permanently eliminates your legal obligation to repay discharged debts.

What Debts Can Bankruptcy Eliminate?

Chapter 7 discharges most unsecured debts completely.

Dischargeable Debts

Credit card balances and medical bills
Personal loans and payday loans
Utility bills and past-due rent
Old tax debts (with exceptions)
Business debts from failed ventures

Non-Dischargeable Debts

Child support and alimony obligations
Recent income tax debts
Student loans (unless you prove undue hardship)
Debts from fraud or malicious injury
DUI-related fines and restitution

Protecting Your Property in Bankruptcy

Exemptions protect essential property from liquidation in Chapter 7. Each state offers different exemption amounts and types.

Common exemptions cover home equity, vehicles, and household goods. You can also protect retirement accounts and tools of trade.

Most people keep everything they own through proper exemption planning. Only unprotected equity becomes available to creditors.

Federal vs. State Exemptions

Some states require you to use state-specific exemptions. Others let you choose between state and federal exemptions.

Federal exemptions include a wildcard that covers various property types. State exemptions often provide higher homestead protection.

How Bankruptcy Affects Your Checking Account

You can keep your checking account in most Chapter 7 cases. Account balances under the exemption limit receive full protection.

Avoid keeping large balances in accounts on your filing date. Banks with whom you owe money may freeze accounts temporarily.

Open a new account at a different bank before filing if needed. Move your direct deposits to the new account.

Bankruptcy and Your Vehicle

You can keep your car if equity is fully protected by exemptions. Continue making loan payments to avoid repossession.

Reaffirmation Agreements

Reaffirmation keeps you personally liable for a secured car loan. Some lenders require reaffirmation to keep the vehicle.

Signing reaffirmation removes bankruptcy protection for that specific debt. You lose the ability to discharge it later.

Consider alternatives like ride-through or redemption before reaffirming. Redemption lets you buy the car at current value.

The Bankruptcy Trustee’s Role

A bankruptcy trustee oversees your case and protects creditor interests. Trustees don’t work for you or against you.

In Chapter 7, trustees review paperwork and conduct the 341 meeting. They identify and sell non-exempt property when it exists.

Chapter 13 trustees manage your repayment plan and distribute payments. They ensure you comply with all bankruptcy requirements.

What Happens After Your Discharge

Your discharge order arrives 3-6 months after filing Chapter 7. The order permanently eliminates discharged debts from your legal obligations.

Creditors cannot contact you about discharged debts ever again. Attempts to collect on discharged debts violate federal law.

Rebuilding Your Credit

Bankruptcy remains on your credit report for 7-10 years. Your credit score typically improves within 12-24 months of discharge.

Start rebuilding immediately with secured credit cards and on-time payments. Our partner Kikoff helps you rebuild credit affordably.

Many people achieve credit scores above 700 within two years. Bankruptcy removes debt burden, making rebuilding easier.

Filing Bankruptcy Without an Attorney

Many people successfully file Chapter 7 without hiring a lawyer. Simple cases with no assets work well for self-filing.

Complex situations benefit from professional legal guidance and representation. Consider attorney help if you own valuable property.

Free consultations let you assess whether you need an attorney. Legal aid organizations assist low-income filers at no cost.

Special Bankruptcy Situations

Bankruptcy While Unemployed

You can file Chapter 7 with no income or while receiving unemployment benefits. Low income makes qualifying easier under the means test.

Fee waivers eliminate court costs for those with minimal income. Unemployment benefits don’t disqualify you from filing.

Filing After Moving States

You must live in your current state for 91 days before filing. Exemption laws require 730 days of residency in most cases.

Use your previous state’s exemptions if you haven’t met the residency requirement. Some states don’t allow non-residents to use their exemptions.

Bankruptcy for Seniors

Fixed-income seniors often benefit most from Chapter 7 bankruptcy. Social Security income receives protection from creditors.

Bankruptcy may be unnecessary if you’re judgment-proof with protected income. Evaluate whether creditors can actually collect before filing.

Bankruptcy and Disability Benefits

Social Security disability income must be reported but isn’t counted against you. VA disability benefits receive similar treatment in bankruptcy.

Unspent disability funds in bank accounts need exemption protection. Lump-sum back payments require careful exemption planning.

Avoiding Bankruptcy Fraud

Bankruptcy fraud carries penalties including prison time and fines. Hiding assets or income constitutes the most common fraud type.

Report all property, income, debts, and financial transactions honestly. Transferring property before filing to hide it is illegal.

Lying to the trustee during your 341 meeting is perjury. Answer all questions truthfully even if uncomfortable.

When Bankruptcy Isn’t Right

Bankruptcy doesn’t solve every financial problem or situation. Consider alternatives if you’re judgment-proof with protected income.

Debt settlement negotiates reduced payoff amounts with creditors. Credit counseling creates affordable payment plans without bankruptcy.

Evaluate your specific circumstances before deciding to file. Speak with a bankruptcy attorney for free to explore all options.

Taking Your Next Step

Bankruptcy provides powerful debt relief for those who qualify. Understanding the process removes fear and uncertainty.

Gather your financial documents and assess your situation honestly. Determine whether Chapter 7 or Chapter 13 fits your needs.

Don’t let overwhelming debt control your life any longer. Professional guidance helps you navigate the process successfully.

Frequently Asked Questions

What is the difference between Chapter 7 and Chapter 13 bankruptcy?

Chapter 7 eliminates most unsecured debts in 4-6 months without requiring repayment, working best for people with limited income and assets. Chapter 13 creates a 3-5 year repayment plan that lets you catch up on secured debts like mortgages and car loans while protecting your property from liquidation.

How much does it cost to file for bankruptcy?

Filing bankruptcy costs between $0 and $3,000+ depending on your situation. Chapter 7 filing fees are $338, but you may qualify for a waiver based on income. Credit counseling courses cost $10-50 each with waivers available. Attorney fees range from $1,000-$3,500, though many people successfully file Chapter 7 without a lawyer.

Can I keep my house and car if I file Chapter 7 bankruptcy?

Yes, you can keep your house and car in Chapter 7 if the equity is fully protected by bankruptcy exemptions. Most people keep all their property because exemptions cover the value. Continue making loan payments on secured debts to avoid repossession or foreclosure.

What debts cannot be eliminated in bankruptcy?

Chapter 7 cannot eliminate child support, alimony, recent tax debts, most student loans, debts from fraud or malicious injury, and DUI-related fines. All other unsecured debts including credit cards, medical bills, personal loans, and old utility bills can typically be discharged.

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 stays for 7 years. Despite this, your credit score typically improves within 12-24 months after discharge because bankruptcy eliminates the debt burden preventing you from making on-time payments.