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Illustration of bankruptcy papers being files alongside a gavel representing the law
Rangely Garcia / Money

If you’re getting hounded by creditors, facing foreclosure on your home or feeling overwhelmed by debt in other ways, bankruptcy might be the answer.

Filing for bankruptcy is neither fast nor easy, and it has lasting ramifications on your credit. However, it can give you a fresh start by allowing you to eliminate some of your debts or create a repayment plan, depending on the type of bankruptcy you choose.

Deciding to file for personal bankruptcy is a tough choice, but you shouldn’t beat yourself up over it. Bankruptcy is specifically designed to help disperse the cloud of debt hanging over you. And it’s probably more common than you think: More than 360,000 people filed for bankruptcy for the year ending on June 30, according to federal data.

Keep reading to learn how to use bankruptcy to forge a brighter financial future.

Table of contents:

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How to file for bankruptcy

Below, we’ll walk you through bankruptcy basics, step-by-step. Bankruptcy is a federal procedure, so the basic steps hold true no matter where you live. However, local regulations do play a role in bankruptcy cases, especially in regards to property exemptions.

This guide shouldn’t be used in lieu of legal advice. Rather, treat it as an overview of what it takes to file for bankruptcy.

1. Consult a bankruptcy attorney

While you’re allowed to represent yourself when filing for bankruptcy — aka filing pro se — we suggest consulting an experienced bankruptcy attorney in your area.

Research shows that legal aid will drastically increase your case’s chances of a favorable outcome. Usually, this means receiving a “bankruptcy discharge,” which is a court order that wipes away your liability for some or all the debts you can’t repay.

According to the American Bankruptcy Institute, less than half of people who represent themselves in a Chapter 7 Bankruptcy case receive a discharge. With a bankruptcy lawyer? About 94% are successful in getting a discharge. Plus, Chapter 7 is the easier option of the two main forms of bankruptcy for individuals to represent themselves. The stats for the other main type, Chapter 13, are even worse for pro se filers. (We break down the differences between the two types in depth below.)

Suffice it to say, speak with a lawyer or two near you who’s experienced with bankruptcy law. Here are a few resources to find them:

It’s understandable that you might be hesitant to pay for an attorney when you’re already under considerable financial pressure. The good news is that you may qualify for free legal aid, either at one of the organizations listed above or at another local organization.

Many attorneys also offer free consultations or email Q&As. Take advantage of that. (The non-profit app Upsolve can help you find free consultations, resources and legal help — free of charge.)

Ask them if bankruptcy is indeed the right choice for your situation and whether they think you’ll qualify. Before you pay to file bankruptcy forms and blemish your credit report for up to 10 years, check to see if you have any viable alternatives like debt negotiation or non-profit credit counseling.

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2. Get your financial documents in order

Now that you’ve decided bankruptcy is indeed the right course of action — and you hopefully cleared it with an attorney — you’ll need to get started on the paperwork.

Before you dive into all the official bankruptcy forms, you should get your own documents in order.

When you file for bankruptcy, you’re telling a federal court that you can’t afford your debts and you need assistance. Later down the line, you’ll actually need to prove that by disclosing all sorts of information about your financial affairs.

Here’s a basic list of what you’ll need on the road ahead:

  • Identifying documents like your driver’s license and Social Security card
  • Tax returns (up to the past four years)
  • Proof of income (pay stubs, W-2s, self-employed earnings, income from assets as well as any income from government benefits)
  • Bank and retirement account statements
  • Proof of value of your assets, such as vehicle and real estate valuation. You may also need loan balances, proof of insurance, monthly payment amounts or related documents.
  • A list of your creditors and the amount you owe them
  • A detailed breakdown of your monthly living expenses

Having these documents organized upfront is crucial. For one, it can help you determine which type of bankruptcy you should file for. Two, these documents — and possibly more — may be requested by a bankruptcy trustee, who will be appointed to your case.

3. Understand your debt and settle on a course of action

Having your financial paperwork organized will help you at this stage.

You’ll want to understand what type of debt you’re trying to resolve. Debts like child support, alimony and certain unpaid taxes can’t be discharged. Student loan debt, on the other hand, is not impossible to discharge, but note that it is difficult to do so.

Knowing this ahead of time will help you decide whether to file Chapter 7 bankruptcy or Chapter 13 — or whether you qualify at all. Here’s how they differ:

Chapter 7 vs. Chapter 13

By a large margin, most people choose to file for Chapter 7 bankruptcy. The entire process is generally quicker, easier and cheaper. It’s possible to get your qualifying debts discharged within six months.

Also known as a liquidation bankruptcy, under Chapter 7, a court trustee determines whether you have assets worth selling off to your creditors. (What counts as an asset varies by state, but most Chapter 7 cases end up being “no asset,” meaning nothing is liquidated.)

To qualify for Chapter 7, you must pass a “means test” that’s based on your state’s median income.

If your income is too high, you have another option: Chapter 13. This option takes longer to resolve your debts because it requires a long-term repayment plan — usually three to five years — before some of your remaining debts are wiped away. The filing process is also a lot more complex than Chapter 7.

You can use this type of bankruptcy to catch up on secured debts (such as mortgages or car loans) without losing your property and without risking the liquidation of any other assets as with Chapter 7.

A Chapter 7 bankruptcy stays on your credit report for 10 years, whereas a Chapter 13 bankruptcy falls off after seven. Both have lasting impacts on your credit score, and any new debt you take out will likely come with higher interest rates.

4. Complete the first credit counseling course

Before you submit your bankruptcy forms, you must first complete a mandatory course from a credit counseling agency that has been approved by the Department of Justice (with the notable exception of filers in Alabama or North Carolina). This step is required regardless of the type of individual bankruptcy you pursue.

The course can be completed online, in person or over the phone. Courses typically cost between $15 and $50. You must complete the course within 180 days of filing for bankruptcy. Use the Department of Justice’s website to find a program.

NOTE: If you live in Alabama or North Carolina, you must choose and complete a course from a list of separately approved providers in your state.

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5. Fill out bankruptcy forms

No matter the type of bankruptcy you choose, you’ll need to fill out a lengthy list of court documents.

Both Chapter 7 and Chapter 13 require you to fill out a bankruptcy petition and a statement of financial affairs, while some of the other forms are optional. The U.S. Courts website (uscourts.gov) compiles all of the bankruptcy forms you’ll need.

Additional local court forms may also be required. Again, we highly recommend you use legal aid. A bankruptcy attorney will be able to help you fully understand and properly complete all these forms to ensure your case isn’t rejected.

6. File bankruptcy forms in court

After you complete all the required forms, you must file them with your federal district’s bankruptcy court. An attorney will typically handle this for you.

If you’re filing on your own, know that there are 90 different bankruptcy districts. Check that you’re filing with the correct one based on where you live. If your permanent residence has moved within 180 days of filling, you should file in the district where you lived the greater portion of that 180-day period.

When you file, you can expect to pay a combination of filing and administrative fees to the tune of $300 or more. If you can’t afford that amount, you can apply to have your filing fees waived.

7. Mail documents to your court-appointed trustee

Once you submit your bankruptcy forms to the court, a bankruptcy trustee is appointed to your case.

The exact role the trustee plays in your case is slightly different for Chapter 7 and Chapter 13 bankruptcies. Broadly speaking, the trustee reviews the forms you filed with the court and may request additional information at this point to substantiate what you submitted.

Typically, your bankruptcy attorney will work with the trustee, but you may need to send the person documents such as pay stubs, tax returns, and bank account and credit card statements.

8. Attend the ‘341 meeting’ of creditors

The trustee who was just appointed to your case will soon set up a mandatory meeting with you, known as the “341 meeting” because it's a requirement of Section 341 of the U.S. Bankruptcy Code.

Your creditors will also be invited but aren’t required to attend. In this meeting, you (and your spouse if you filed bankruptcy together) will be placed under oath and you must answer questions from the trustee and possibly from your creditors about your financial situation.

The meeting of creditors is often referred to as the scariest part of bankruptcy because you are asked specific questions about potentially embarrassing aspects of your financial life in a public forum. And if you miss it, your case could be dismissed.

The good news is that creditors often do not show up, and the meetings typically last only 10 to 15 minutes.

9. Handle nonexempt property

Depending on which chapter of bankruptcy you filed for, your “nonexempt” property is factored in differently.

Overall, the bankruptcy process allows you to exempt — or essentially protect — a lot of your real estate or personal property that is viewed as a necessity. The exemptions aren’t automatic, however. You will need to provide a timely list of what qualifies as an exemption . Exemptions may apply to non-luxury, primary vehicles, necessary home goods and home equity (though these exemptions rules can vary widely by state).

Any property outside the list of exemptions is considered nonexempt, and if you don’t provide any list, then all your property is considered nonexempt. Property that often isn’t eligible for exemptions includes luxury items like boats, additional cars, vacation homes or jewelry.

During a Chapter 7 bankruptcy, your nonexempt property may be sold off by the trustee to pay your creditors.

For Chapter 13 bankruptcy, trustees don’t sell your nonexempt property, but they use its valuation when setting up your repayment plan. Say you owned a nonexempt sports car valued at $65,000. The trustee wouldn’t sell your sports car to immediately pay off the creditor. Instead, you would pay your creditors that amount over the course of your payment plan.

10. Keep making payments on your secured debts

A common misconception with bankruptcy is that once you file, you can stop paying your debts.

While bankruptcy can help you wipe out many of your unsecured debts, such as overdue medical bills or personal loans, you’ll want to keep paying your monthly payments for secured debts if you want to keep the property. (A secured debt is a loan for a physical item, like a car loan.) If you don’t make payments, the lender has a right to repossess your vehicle.

If you’re behind on your mortgage payments and have exhausted all other financial-relief options, then filing for Chapter 13 may delay a foreclosure and help save your home. Ultimately, you will still need the income to continue making future mortgage payments, as well as repaying any late payments over the course of your payment plan.

11. Wait for your eligibility to be determined

Just because you’ve made it through much of the bankruptcy process doesn’t mean your debts will automatically be wiped out.

Your debts may not be discharged if there are legal exceptions for the type of debt — or if you provided incorrect, incomplete or fraudulent information while under oath or during the filing process.

There’s also a window of time during which the bankruptcy judge gives creditors and the case trustee the opportunity to object to any discharges. If they do, that kicks off a lawsuit referred to as an “adversary proceeding.”

On top of that, there’s also the possibility your case gets randomly audited by the Department of Justice. If so, you may be required to provide additional information. The audit could delay any debt relief by several weeks. Of course, if the audit turns up incorrect information, your case could be dismissed.

All that said, these are fairly rare instances. That you made it this far in the process is a decent sign at least some of your debts are eligible for discharge.

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12. Complete the debtor counseling course

Before your debt can be officially discharged, you must complete a debtor counseling course, similar to the course you had to complete before you filed.

The providers of this course must also be approved by the Department of Justice (with the same exceptions for North Carolina and Alabama filers).

You typically can find the debtor education course at a cheaper price than the first course. For example, one approved provider offers the course online for as low as $7.95. Some providers will offer to file your completion certificate directly with your local court. Whether you go that direction or file it yourself, complete this step ASAP to speed up the discharge process.

13. Wait for your discharge

How long it takes for your debts to be discharged officially depends on the chapter of bankruptcy you filed for.

For Chapter 7, if all went smoothly, discharges are typically determined about four months after you filed for bankruptcy.

It happens much later for Chapter 13: Debts are only discharged after you fulfill your three- to five-year repayment plan.

Summary of Money’s guide on how to file for bankruptcy

  • As an everyday consumer, you have two main chapters of bankruptcy to choose from: Chapter 7 and Chapter 13. We highly recommend you first collect all your financial documents and consult with an attorney to understand which one is best for your situation.
  • Before you start filing, you must take a credit counseling course and obtain a certificate of completion.
  • You will need to complete several bankruptcy forms and submit them to your local bankruptcy court district.
  • At the “341 meeting,” the bankruptcy trustee (and possibly your creditors) will ask questions about your financial situation.
  • During the bankruptcy process, you should continue making monthly payments on your secured debt payments if you’d like to keep that property.
  • You’ll have to complete a second course, on debt counseling, before your debts are discharged.

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