Filing for Bankruptcy in 2024

Find the answers to common bankruptcy questions while learning about the three types of bankruptcy available when filing for bankruptcy in 2024.

By , Attorney University of the Pacific McGeorge School of Law
Updated 1/26/2024

If you're one of the millions struggling financially due to inflation, illness, job loss, or another unexpected event, you're not alone, and filing for bankruptcy can help. But first, you need answers to a few essential bankruptcy questions, which we answer below. The good news is that if you find filing for bankruptcy is the answer, you can expect the weight to lift from your shoulders. But the best part? Bankruptcy filers say that getting the bankruptcy discharge, the order that wipes out your debt when filing for bankruptcy, feels even better.

We explain the differences between the three types of bankruptcy, Chapters 7, 13, and 11, and how each bankruptcy type works below.

Understanding How to File for Bankruptcy in 2024

No one is immune from debt or life's challenges. The bankruptcy system exists because, sometimes, people need help getting back on their feet. It helps by unwinding the contract between you and your creditor. Without a contract, you have no obligation to pay the debt and get a fresh financial start.

As powerful as bankruptcy is, filing for bankruptcy won't solve every financial problem, so it's crucial to learn what bankruptcy can and cannot do.

Can I Keep My Property If I File for Bankruptcy?

Everyone needs things to maintain a home and employment. You'd hardly get a fresh start if you lost all your belongings when filing for bankruptcy. So don't worry about losing everything you own.

Exemptions Protect Property When Filing for Bankruptcy

Each state decides the type of property a filer will need after filing for bankruptcy. Bankruptcy exemptions, the state laws that tell you what you can keep, vary widely. Even so, you'll likely be able to protect some equity in a home and car, household furnishings, a retirement account, and more.

But you might also learn that some of your assets aren't covered or are "nonexempt," especially if you own luxury property like artwork, collections, boats, stocks and bonds, and rental property. If you have nonexempt property, check for a "wildcard" exemption you can use to protect the nonexempt property of your choice.

How Exemptions Work in Different Types of Bankruptcy

It doesn't matter which of the three types of bankruptcy you file. The exemptions are the same regardless of whether you file for Chapter 7 or Chapter 13 (the two types most people file), or Chapter 11 (the kind of bankruptcy businesses and individuals who make too much for Chapter 13 bankruptcy file).

However, the type of bankruptcy will determine what will happen to your nonexempt property.

  • In Chapter 7, you'll lose nonexempt property. It will be sold for the benefit of your creditors.
  • In Chapter 13, you'll keep all your property but pay its value to your creditors through the Chapter 13 repayment plan.

The system ensures that creditors receive the same amount in both bankruptcy chapters.

Can I Keep My Car When Filing for Bankruptcy?

In most cases, yes. In Chapter 7, you must be able to protect all equity with an exemption to keep the trustee from selling it. You'll also need to be current on the payment if it's financed. Otherwise, the lender could ask the bankruptcy court to allow the repossession or wait until after the Chapter 7 case ends to recover it. Learn more about keeping a car in Chapter 7.

Keeping a car in Chapter 13 or several vehicles is relatively easy. If you can't protect all the equity with an exemption, you can pay creditors for the nonexempt portion through the plan. Also, if you're behind on your car payment when you file, you can catch up on the arrearages in the plan.

If you want to take a peek at what you'd be able to protect, check out bankruptcy exemption laws by state.

How Do I File Bankruptcy for Credit Card Debt and Other Bills?

You already know that filing for bankruptcy works by wiping out debt, such as credit card balances. And you'll be able to erase overdue utility payments, medical bills, and personal loans. You can even get rid of a mortgage or car payment if you're willing to give up the house or car you put up as collateral to secure the debt.

But did you know you can't discharge all debts? For instance, child support will never go away in bankruptcy, and student loans are difficult to wipe out. You'd have to win a separate lawsuit.

These types of debts are known as "nondischargeable debts." Before deciding to file, be sure that bankruptcy will "discharge" or eliminate enough bills to make it worthwhile.

When Filing for Bankruptcy, Which Type Should I Choose?

Not all bankruptcy chapters work the same way, which is good because when your financial situation is unique (as all are), having options helps. Your next step will be to determine which type of bankruptcy will be best for you: liquidation or reorganization bankruptcy.

Filing for Bankruptcy: Chapter 7, The Liquidation Bankruptcy

Chapter 7 bankruptcy is most filers' first choice. It wipes out qualifying debt without creditor repayment. It's also quick, taking about four months to complete. And if you're an individual, you don't lose everything. You can keep the property you need to work and live.

What to Know About Filing for Chapter 7

Chapter 7 doesn't solve all problems and has some downsides. Because it's quick and doesn't involve creditor repayment, Chapter 7 won't help you permanently stop a foreclosure or repossession. You'll want to explore Chapter 13 to save a home from foreclosure or keep your car from being repossessed.

Learn whether you'll lose your home in Chapter 7 bankruptcy.

How Filing for Chapter 7 Bankruptcy Works

Also, it's called "liquidation bankruptcy" because the Chapter 7 trustee appointed to handle the case sells the debtor's property for the benefit of creditors. In an individual bankruptcy, the trustee sells the filer's nonexempt luxury property, so losing things like sporting equipment, gun collections, boats, recreational vehicles, and rental property is common. In a bankruptcy brought by a business, the trustee sells all of the business assets.

Filing Reorganization Bankruptcy Chapters 9, 11, 12, and 13

Individuals and businesses with extra income to pay debts but insufficient to cover current expenses use "reorganization" bankruptcy chapters. The debtor, creditors, and the court agree on a plan that redistributes the debtor's income among the creditors. Here's who typically uses each of these types of bankruptcy:

Filing for Bankruptcy Chapter 13

This type of bankruptcy requires a filer to pay creditors through a three- to five-year repayment plan. While the repayment requirement is often too costly for many, it has benefits.

For instance, if a creditor is playing hardball, a filer can avoid collection efforts and force the creditor into a Chapter 13 payment plan. However, one of the most significant benefits of Chapter 13 is that a debtor can avoid foreclosure and keep a house that would be lost otherwise.

Because debts aren't treated equally in Chapter 13, a debtor can often channel the monthly payment toward what the debtor wants to accomplish, such as catching up on a house or car payment and paying off nondischargeable tax balances and support obligations over time. Creditors holding debts that filers don't care much about, credit card, medical, personal loan balances, and the like, are left dividing what remains, which usually isn't much.

Other benefits exist, too. For instance, a filer can strip off a junior residential mortgage if a home is significantly underwater. It's also possible to reduce the amount owed on personal property or nonresidential real estate if the debtor can pay the reduced amount in full through the plan, in what is known as a "cramdown."

Overall, drafting a Chapter 13 plan is an involved process, and retaining a bankruptcy lawyer is highly recommended. Other reorganization plans are even more complex. But because they involve extensive negotiations, even more options are available.

Bankruptcy Eligibility

You don't need a particular amount of debt to file for bankruptcy, but there are many other eligibility rules. These are the most common.

Multiple Bankruptcy Filings

Debt discharges aren't unlimited. If you've filed for bankruptcy before, you might not qualify immediately. The waiting period will depend on the chapter you filed previously and the chapter you intend to file now.

For instance, suppose you filed for Chapter 7 two years ago. The waiting period between Chapter 7 and 13 filings is four years. It's eight years if you want to file another Chapter 7. So you'll need to wait for another two to six years.

Qualifying for Chapter 7 Bankruptcy Filing

Almost everyone must pass the "means test." There are three ways to meet this requirement.

First is the easy way. Check whether you're exempt. If you are, you can skip the means test altogether. Filers who have more business debt than personal debt are exempt. So are certain military members and veterans.

Next is the reasonably straightforward method. You'll compare your gross household income to your state's median income for a family of the same size. Add the gross income you and your family earned over the last six months and multiply by two. Then, compare it to the figures posted on the U.S. Trustee website (select "Means Testing Information" under the "Consumer" tab). You'll pass if your income is less than or the same as the state's median income for your family size.

Finally, the complicated approach. If your gross income is too high, you can take the second portion of the means test. You'll use the means test forms to deduct allowed expenses (beware, this sounds easier than it is). You'll be eligible for Chapter 7 if you don't have enough income to pay into a Chapter 13 plan.

Qualifying for Chapter 13 Bankruptcy Filing

Fewer people file for Chapter 13 than Chapter 7 primarily because the benefits offered by Chapter 13 bankruptcy come at a hefty price, and many can't afford it. The first set of requirements is relatively easy to meet:

  • Chapter 13 bankruptcy is available only to individuals and sole proprietors. Businesses can't file.
  • If you exceed the Chapter 13 debt limits, you must file an individual Chapter 11 bankruptcy.

The tricky part is the required payment. While it's possible to "pay pennies on the dollar," for most, Chapter 13 bankruptcy gets expensive fast because, in addition to your monthly living expenses, you must make enough to cover the larger of the following over five years:

  • all of the debts you're required to pay in full, such as current tax debt, support arrearages, and house or car payment arrearages
  • the value of any nonexempt property, or
  • your disposable income, the amount left over after subtracting allowed expenses.

People who qualify for Chapter 7 bankruptcy but elect to file for Chapter 13 bankruptcy don't need to follow these rules. They pay according to their budget over three years, but they can extend the period to five years if it's more manageable. Find out more about calculating a Chapter 13 bankruptcy payment.

Qualifying for a Chapter 11 Bankruptcy Filing

Much like Chapter 13 bankruptcy, filers must propose an acceptable plan. But the process is significantly different and even more complicated. Find out more about individual and business Chapter 11 bankruptcies.

Hiring a Lawyer When Filing for Bankruptcy

Retaining a professional to help you with your case is well worth the cost. Not only will you have peace of mind that you've filed a correctly prepared case, but you'll also receive guidance throughout the process. Most importantly, a bankruptcy lawyer will ensure that you don't lose important property unexpectedly and don't find yourself facing bankruptcy fraud charges.

How Much Does It Cost to File Bankruptcy?

Attorneys' fees for a Chapter 7 case can range from $1,200 for a simple matter to $3,500 or more for a more complicated case, depending on where you live. Most filers can expect to pay somewhere between $1,500 and $2,000. Remember that a Chapter 7 bankruptcy lawyer will require you to pay the fees in full before filing your matter. Why? Because the bankruptcy case would wipe out any unpaid amount.

By contrast, Chapter 13 lawyers' fees will be significantly more, but unlike Chapter 7, many will accept a downpayment as low as $100. You'll likely be able to pay the remainder through the repayment plan.

Filing for Bankruptcy Without an Attorney

If you have a relatively simple case, filing for Chapter 7 without a lawyer is possible. An example of a simple case would be one in which you can protect all property with exemptions, and your income is low enough to qualify easily.

By contrast, it's far more difficult to represent yourself in Chapter 13. Most people find it challenging to draft a plan the bankruptcy court will confirm without the help of specialized bankruptcy software.

Learn about your options if you can't afford a bankruptcy lawyer.

Filing for Bankruptcy: The Bankruptcy Process

While most people hire a bankruptcy lawyer to prepare their bankruptcy paperwork and guide them through the process, it's possible to do your bankruptcy yourself if it's simple enough. You can get a feel for your case's complexity using our bankruptcy quiz. We'll alert you to issues you might want to run by a bankruptcy lawyer.

Starting Your Bankruptcy Case

Your bankruptcy case will begin when you file the bankruptcy paperwork with the bankruptcy court. Go to your state's bankruptcy article for specifics on where and how to file.

The court will issue an automatic stay that will prevent most creditors from continuing to collect from you. Even court cases and trials related to debt collection will have to stop. Keep in mind that bankruptcy won't stop all lawsuits. For instance, you'll still have to make support payments, and criminal actions can go forward, too.

The Bankruptcy Trustee

Don't assume that what you say in your paperwork will be accepted at face value. The court will assign a professional called the bankruptcy trustee to check out your filing thoroughly.

When reviewing your paperwork, the trustee will compare the figures in the petition and schedules to your tax returns, bank statements, paycheck stubs, profit and loss statements, and the other financial documents you'll be required to provide. The trustee will also look for signs of bankruptcy fraud.

If the trustee spots an issue, the trustee might do any number of things. For instance, it isn't unusual for a trustee to ask for additional documents or photos or inspect an item of property, storage space, or real estate. A trustee will usually attempt to work out a problem informally before or at the 341 meeting of creditors. If you can't resolve it, the trustee will file a motion or adversary proceeding (although these actions are relatively unusual).

The Creditors' Meeting

Every filer must attend at least one bankruptcy hearing, the 341 meeting of creditors. It isn't a court appearance, but you must take it seriously. The trustee, not the judge, holds the meeting in a conference room at the courthouse or elsewhere, and about ten filers are assigned to appear during the same hour.

When it starts, the trustee will take attendance and provide initial instructions. Here's what you'll do next:

  • Provide identification proving you're the debtor, usually a driver's license and Social Security card.
  • Take an oath affirming that you'll answer the trustee's questions truthfully.
  • Answer standard questions the trustee must ask all debtors and any particular questions the trustee might have about your case.
  • Answer questions from any creditors present (although they rarely show up).

A trustee who is satisfied with your responses will conclude the meeting. Otherwise, the trustee will continue the case until another day—something that often happens when one of the following applies:

  • you forgot your identification
  • the trustee needs additional documents from you, or
  • a creditor needs more time for questioning.

In most cases, the debtor's appearance at the creditors' meeting takes less than ten minutes.

Final Steps to a Bankruptcy Discharge

At this point, Chapter 7 filers will be in the final stretch, with one more responsibility to complete, filing a financial management course certificate. By contrast, Chapter 13 filers will just be getting started. They'll need to do the following:

  • ask the judge to confirm (approve) the proposed repayment plan at a confirmation hearing
  • complete the repayment plan, and
  • file a financial management course certificate and other documents with the court.

After completing all steps, the debtor will receive a debt discharge wiping out qualifying debt.

Life After Bankruptcy: A New Beginning

To make the most of your discharge and ensure life after bankruptcy goes smoothly, you'll want to do a bit of planning.

Temporary Problems With Housing, Financing, and Banking

Some areas of your life will be more challenging to negotiate for a year or two after filing for bankruptcy, such as renting or leasing housing, financing a car, and establishing a bank account. So, it's essential to have these things in place before filing. And don't plan on making changes soon.

Tip. If you'll be letting go of a house and you're worried about moving your children's schools, rent something in the area, if possible, before filing.

Rebuilding credit

You can start rebuilding credit soon after completing a bankruptcy. Most filers are surprised by how quickly they receive credit offers. But it makes sense. Creditors know you won't be able to file again for quite a few years, so if you're employed, you'll be a reasonable credit risk. Take the opportunity to find out about credit-building strategies.

Buying a house

Many filers are relieved that they don't need to push aside a dream of buying a home. You could be eligible two to four years after your bankruptcy case. Find out more about post-bankruptcy homebuying requirements so you can plan accordingly.

Planning for the Future

After filing for bankruptcy, it's common to want to secure your future. The first step is following a sound financial plan, of course. But you'll also want to safeguard yourself against unexpected financial hardships. Putting money aside in a savings account is always a good idea.

But you might want to contribute to a 401k plan or another ERISA-qualified retirement account. Not only would it be exempt if you needed to file for bankruptcy again (it happens), but you could draw on it in an emergency. Obtaining life insurance and making a will are other ways to provide for your family.

Alternatives to Bankruptcy

Filing for bankruptcy isn't always needed, especially if you're "judgment proof" and don't have any assets that creditors could take. If you're judgment proof and anticipate that your financial situation won't change, a simple bankruptcy alternative would be to avoid creditor calls.

Other options include working out arrangements with creditors. You might find you can negotiate an agreement to pay less than you owe or work with a credit counseling agency to lower monthly payments by reducing the interest rate.

Need More Bankruptcy Help?

Did you know Nolo has made the law accessible for over fifty years? It's true, and we want to ensure you find what you need. Below, you'll find more articles explaining how bankruptcy works. And don't forget that our bankruptcy homepage is the best place to start if you have other questions!

Our Editor's Picks for You

More Like This

What Are the Differences Between Bankruptcy Chapters 7 Bankruptcy and 13?

Is It Better to File Chapter 7 or Chapter 13 Bankruptcy?

Consider Before Filing Bankruptcy

Selling Property Before Filing for Bankruptcy

Can I Run Up My Credit Card Balances Before I File Bankruptcy?

Your Retirement Plan in Bankruptcy

How to File for Bankruptcy in Your State

Helpful Bankruptcy Sites

Department of Justice U.S. Trustee Program

United States Courts Bankruptcy Forms

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.

Get Professional Help
Get debt relief now.
We've helped 205 clients find attorneys today.
There was a problem with the submission. Please refresh the page and try again
Full Name is required
Email is required
Please enter a valid Email
Phone Number is required
Please enter a valid Phone Number
Zip Code is required
Please add a valid Zip Code
Please enter a valid Case Description
Description is required

How It Works

  1. Briefly tell us about your case
  2. Provide your contact information
  3. Choose attorneys to contact you