Steps to File for Bankruptcy: Chapter 7 vs Chapter 13 Explained

Bankruptcy is the right choice when your unsecured debts (credit cards, medical bills, personal loans) have grown beyond what you can realistically repay in five years. It immediately stops collection calls, wage garnishment, lawsuits, and most foreclosure actions through the automatic stay.

Bankruptcy will not eliminate every debt. Student loans, recent tax debts, child support, alimony, and most fines and restitution generally survive a bankruptcy discharge. An attorney can run a 'means test' and review your specific debts to advise whether filing makes sense.

Chapter 7 wipes out qualifying unsecured debts in roughly three to four months. To qualify, your household income generally must fall below the median for your state, or you must pass a more detailed means test. The trustee can sell non-exempt assets to pay creditors, but most filers keep everything they own thanks to generous federal and state exemptions for homes, vehicles, retirement accounts, and household goods.

Chapter 7 is the most common form of consumer bankruptcy. It is the right choice when there is little ability to repay and few non-exempt assets.

Chapter 13 creates a three- to five-year repayment plan. You pay your disposable income to a trustee each month, who distributes it among your creditors. At the end of the plan, any remaining qualifying unsecured debt is discharged.

Chapter 13 is often the right choice if you are behind on a mortgage and want to keep your home — you can cure the arrears over the life of the plan and stop foreclosure. It is also used by filers whose income is too high to qualify for Chapter 7.

Before filing, you must complete a credit counseling course from an approved provider. Your attorney then prepares a petition listing every asset, debt, income source, and recent financial transaction. The petition is filed with the federal bankruptcy court for your district.

About 30 to 45 days after filing, you attend a brief hearing called the '341 meeting of creditors.' The trustee asks routine questions under oath. Most cases proceed without complications, and creditors rarely appear. After the meeting, you complete a financial management course to receive your discharge.

A bankruptcy filing remains on your credit report for up to ten years, but its impact diminishes quickly. Most filers can obtain a secured credit card within months and an auto loan within a year. Many qualify for an FHA mortgage two years after a Chapter 7 discharge.

The key to rebuilding is consistent on-time payments on small accounts and avoiding the patterns that led to the original filing. Many people find their credit score is higher two years after bankruptcy than it was the day before they filed.

Bankruptcy is procedural and unforgiving — small mistakes on the schedules can cost you exempt property or result in dismissal. Most bankruptcy attorneys offer free consultations and can outline your options in under an hour.

Submit your case through National Legal Connect to be matched with bankruptcy attorneys in your state.