Filing for Bankruptcy in 2025

This comprehensive 2025 bankruptcy guide utilizes case studies to explain the differences between Chapter 7 and Chapter 13, property exemptions, filing costs, and qualification requirements for debt relief.

By , Attorney University of the Pacific McGeorge School of Law
Updated 9/25/2025

If you're one of the millions struggling financially due to inflation, illness, job loss, or another unexpected event, you're not alone. With Chapter 7 bankruptcy filings rising 15% in the first half of 2025, more than ever, people need assistance getting back on their feet. This article explains the differences between the three types of bankruptcy—Chapters 7, 13, and 11—and how each type works.

No one is immune to debt or life's challenges, and filing for bankruptcy can help. Bankruptcy is a federal system that allows individuals struggling financially to eliminate or restructure their debt.

It works by unwinding the contract between you and your creditor. Without a contract, you have no obligation to pay the debt and can get a fresh financial start.

What Property Can I Keep in Bankruptcy? 2025 Real Case Studies

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—it won't happen.

Exemptions Protect Property When Filing for Bankruptcy

Each state decides the type of property you'll need after filing for bankruptcy. (11 U.S.C. § 522.) Bankruptcy exemptions are the laws that tell you what you can protect, and they vary widely among states. Even so, you'll likely be able to protect some equity in a home and car, household furnishings, a retirement account, and more.

However, you might also discover that some of your assets aren't covered or are "nonexempt," especially if you own luxury property such as artwork, collections, boats, stocks, bonds, and rental properties. If you have nonexempt property, a "wildcard" exemption might protect it. It lets you use it 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.

The system ensures that creditors receive the same amount in both Chapter 7 and Chapter 13 bankruptcy proceedings.

2025 Dollar Amount Adjustments: Federal Bankruptcy Exemptions

The federal bankruptcy exemption amounts increased on April 1, 2025, and are valid through March 31, 2028. You can find out whether you can choose between the federal and state bankruptcy exemptions, as well as what you can protect, by reviewing your state's bankruptcy exemption laws.

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 your payments if the loan is 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.

Filing Bankruptcy for Credit Card Debt: Expert Case Analysis

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 be discharged in bankruptcy, and student loans are difficult to discharge. (11 U.S.C. § 523(a)(8).) You'd have to win a separate lawsuit. (Brunner v. New York State Higher Education Services Corp.)

These types of debts are known as "nondischargeable debts." (11 U.S.C. § 523.) Before deciding to file, be sure that bankruptcy will "discharge" or eliminate enough bills to make it worthwhile.

Chapter 7 vs Chapter 13: Real Client Cases Show Which Type Is Right for You

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 is best for you: liquidation or reorganization bankruptcy.

Filing for Bankruptcy: Chapter 7, The Liquidation Bankruptcy

Chapter 7 bankruptcy is the most common choice for filers. It wipes out qualifying debt without creditor repayment. (11 U.S.C. § 701 et seq.) 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

It's referred to as "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 not enough to fully cover all current expenses use "reorganization" bankruptcy chapters. The debtor, creditors, and the court agree on a plan that redistributes the debtor's income among its debts.

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. (11 U.S.C. § 727.) 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 otherwise be lost.

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, such as credit card, medical, and personal loan balances, are left to divide 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 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.

How Much Debt Do I Need to File for Bankruptcy?

It's a common misconception that a specific, high amount of debt is required to file for bankruptcy. The truth is, there's no minimum debt threshold set by law. Instead, the decision to file for bankruptcy should focus on whether it is the most effective solution for your unique financial problems, weighing the benefits against the costs.

Bankruptcy probably wouldn't be needed if you are "judgment proof" and without any income or assets a creditor could collect. Otherwise, filing for bankruptcy would likely make sense if you couldn't resolve your debt problems another way in the foreseeable future.

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 before you can file another Chapter 7, so you'd need to wait another two to six years. (11 U.S.C. §§ 727(a)(8); 1328(f).)

Qualifying for Chapter 7 Bankruptcy Filing

Almost everyone must pass the "means test." (11 U.S.C. § 707(b)(2).) 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 from this requirement. 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 current Chapter 7 median income threshold figures (You'll get to the U.S. Trustee Program Median Income Tables by selecting "Means Testing Information" under the "Consumer" tab on the U.S. Trustee Program website.) 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.

Individuals who qualify for Chapter 7 bankruptcy but opt to file for Chapter 13 bankruptcy are exempt from 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 a plan that is acceptable. But the process is significantly different and even more complicated. Find out more about individual and business Chapter 11 bankruptcies.

You're likely leaning toward Chapter 7 or 13. But before you decide, you'll want to weigh and balance a few more issues.

Bankruptcy Credit Impact: Legal Expert Debunks 5 Common Myths

Many of the common fears associated with bankruptcy are unfounded.

Myth 1. "Bankruptcy will ruin my credit forever."

Reality. While bankruptcy stays on your credit report for 7 to 10 years, many people rebuild their credit score much sooner, and some can even purchase a new home within two to four years.

Myth 2. "I will lose everything I own if I file for bankruptcy."

Reality. This is untrue for most individuals. Bankruptcy exemptions protect essential property, including some equity in a home and a car, household goods, and retirement accounts. Only luxury or nonessential items are typically at risk in Chapter 7 bankruptcy or must be paid for in a Chapter 13 bankruptcy.

Myth 3. "Employers will discriminate against me if I've filed for bankruptcy.

Reality. Federal law prohibits governmental units and private employers from discriminating against you by denying employment, firing, or unfair treatment due solely to a bankruptcy filing.

Myth 4. "Everyone will know I filed for bankruptcy; it's a public record."

Reality. While filings are public, most people don't care enough to search bankruptcy records routinely.

Myth 5. "I can never file for bankruptcy again."

Reality. This is untrue. There are waiting periods between filings, but you can file multiple bankruptcy cases if future circumstances require it.

Are There Other Ways to Get Out of Debt? Bankruptcy Alternatives

Although bankruptcy is one of the most straightforward ways to obtain debt relief, it comes with significant downsides, so it's worthwhile exploring whether other options better suit your needs.

Debt management plans (DMPs). A debt management plan involves a nonprofit credit counseling agency consolidating your credit card debts into one monthly payment. The process consists of lowering interest rates and waiving fees, allowing you to pay off the debt within three to five years affordably.

  • When it works well. You have primarily credit card debt, can afford a monthly payment, and want to minimize the impact of bankruptcy on your credit report. You have filed for bankruptcy before, and not enough time has passed for you to be eligible for another discharge.
  • Potential problems. You have debts that you could erase in bankruptcy, but can't include in the DMP. Most Chapter 7 filers can repair their credit within the timeframe it takes to complete the DMP.

Debt settlement. Debt settlement involves you, an attorney, or a debt settlement company negotiating with your creditors to pay a lump sum that is less than the total amount you owe.

  • When it works well. You can negotiate all your debts and have enough savings to resolve all of them.
  • Potential problems. You can't settle all your debts and have to file for bankruptcy later. You're sued during the negotiation process. The tax bill will be too hefty. (Forgiven debt is often taxable income; 26 CFR. 1.61-12; Income from discharge of indebtedness.)

Debt consolidation. A debt consolidation loan pays off multiple smaller debts, leaving you with a single monthly bill, often with a lower interest.

  • When it works well. You're able to secure a loan with better terms than you're currently paying.
  • Potential problems. If your debt problems have already impacted your credit, you might not qualify for a loan with a favorable interest rate.

How Much Does It Cost to File for Bankruptcy?

Attorneys' fees for a Chapter 7 case can range from $1,000 for a simple matter to $2,500 or more for a more complicated case, depending on where you live. Most filers can expect to pay somewhere between $1,800 and $2,200. By contrast, Chapter 13 lawyers' fees will be significantly higher, likely ranging from $2,500 to $5,000.

Tip. A Chapter 7 bankruptcy lawyer will require payment in full before filing your matter because the bankruptcy would eliminate the unpaid amount. In Chapter 13, you'll likely be able to pay a portion of the fees and pay the remainder through the repayment plan.

Should I Hire a Bankruptcy Lawyer, or Can I File Myself?

While the law doesn't stop you from filing for bankruptcy "pro se" or without an attorney, most people have better outcomes when represented in Chapter 13 and complicated Chapter 7 cases.

When filing pro se might be possible:

  • Minimal, unsecured debt, such as credit cards and medical bills.
  • No real estate or few assets, all clearly covered by state exemptions.
  • Income well below your state's median, making the means test easy.
  • No prior bankruptcy filings or complex legal issues, such as recent large purchases, property transfers, or lawsuits.
  • Reliance on resources from the U.S. Courts website, legal aid, and self-help guides.

Significant risks of filing pro se:

  • property loss
  • case dismissal
  • nondischargeable debts, and
  • bankruptcy fraud allegations.

Filing for Bankruptcy: The Bankruptcy Process

You'll begin by preparing the bankruptcy paperwork and completing your credit counseling course.

What Are the Mandatory Courses for Bankruptcy?

Individuals filing for bankruptcy are required to complete two educational courses and submit a certificate of completion to the court. (11 U.S.C. § 109(h).) Approved agencies are listed on the U.S. Trustee Program website.

Prebankruptcy Credit Counseling:

  • Must be completed during the 180 days before filing your bankruptcy petition.
  • To explore all debt relief options with a certified counselor, including bankruptcy alternatives.
  • Typically $25-$50, with waivers available.

Debtor Education or Financial Management Course:

  • About 45-60 days after the 341 meeting for Chapter 7, or before the final plan payment for Chapter 13.
  • Personal financial management, budgeting, and responsible credit use to avoid future financial difficulties.
  • Similar to credit counseling, with waivers available.

Failing to complete either course will result in your bankruptcy case being dismissed without a discharge. You'll need to repay the filing fee to file the certificate and receive the discharge.

Starting Your Bankruptcy Case

Your bankruptcy case will begin when you file the completed petition with the bankruptcy court. The court will issue an automatic stay that will prevent most creditors from continuing to collect from you, including garnishments, foreclosures, repossessions, and court cases and trials related to debt collection. (11 U.S.C. § 362.)

Keep in mind that bankruptcy won't stop all lawsuits. For instance, you'll still be required to make support payments, and criminal actions can also be pursued.

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, known as the bankruptcy trustee, to thoroughly review your filing.

  • The trustee compares the figures in the petition and schedules to your tax returns, bank statements, paycheck stubs, profit and loss statements, and other required financial documents.
  • The trustee also looks for signs of bankruptcy fraud.
  • If an issue is found, the trustee might request additional documents or photos or inspect property, storage space, or real estate.
  • A trustee usually attempts to resolve problems informally before or at the 341 meeting of creditors.
  • If the problem can't be resolved, the trustee will file a motion or adversary proceeding (though 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. When it starts—either in person or virtually—the trustee will take attendance and provide initial instructions. Here's what you'll do next:

  • 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:

  • you forgot your identification
  • the trustee needs additional documents, 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

After the 341 meeting, Chapter 7 filers would be in the final stretch, with one more responsibility remaining: completing a financial management course. However, Chapter 13 filers would need to:

  • ask the judge to confirm (approve) the proposed repayment plan at a confirmation hearing (11 U.S.C. § 1325)
  • complete the repayment plan, and
  • file a financial management course certificate and other documents with the court.

If you meet all requirements, you'll 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.

Need More Bankruptcy Help?

Did you know Nolo has made the law accessible for over fifty years? It's true—and we wholeheartedly encourage research and learning. You'll find many more helpful bankruptcy articles on Nolo's bankruptcy homepage. Information needed to complete the official downloadable bankruptcy forms can be found on the Department of Justice U.S. Trustee Program webpage.

However, online articles and resources can't address all bankruptcy issues and aren't written with the facts of your particular case in mind. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.

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