Understanding Bankruptcy: What To Know Before You File
Learn how the bankruptcy process works and what to consider while reviewing your options
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- Bankruptcy can eliminate many debts and immediately stop most collection efforts, wage garnishments and foreclosure proceedings.
- Most people filing Chapter 7 don’t lose their belongings, because bankruptcy exemptions often protect their assets.
- Bankruptcy can provide a financial fresh start, but it remains on your credit report for seven to 10 years and isn’t the right solution for everyone.
What is bankruptcy?
Bankruptcy is a legal process that erases some or all of your debt. A federal court oversees the case, and a court-appointed trustee manages the details, from selling off assets
Filing triggers an automatic stay the moment your case opens. The stay pauses most collection efforts, stops wage garnishments and can halt a home foreclosure while your case moves forward.
However, that relief comes at a cost. Bankruptcy impacts your credit score and ability to borrow money for years afterward.
Certain debts get discharged, or forgiven, once your case succeeds. Which debts qualify depends on the chapter you file. Some chapters require you to sell eligible assets to pay down what you owe, and others let you keep your assets in exchange for repaying debt over three to five years.
Personal bankruptcy filings rose for a third straight year in 2025, reaching 549,577, up 46.9% compared to 2022, according to LendingTree’s bankruptcy research. It’s a legal tool for people whose debt has outpaced their ability to pay, not a sign of failure.
Still, it’s one of the most drastic moves available for your finances, so it’s important to understand the process and its consequences before you commit to it.
Types of bankruptcies
There are six types of bankruptcies, and each is given a number that corresponds to a chapter of the bankruptcy code. Chapter 7 and Chapter 13 are the ones you’re most likely to come across, and both typically apply to individuals rather than businesses. Chapter 11 is another common form, but it applies mostly to businesses.
| Chapter 7 | Chapter 13 | |
|---|---|---|
| Also known as | Liquidation bankruptcy | Wage-earner’s plan |
| How it works | Sell nonexempt assets to pay debt; remaining eligible debt is discharged | Repay some or all debt over 3-5 years; no asset sales |
| Who’s eligible | Income below your state’s median, or you fail a means test | Unsecured debt under $526,700 or secured debt under $1,580,125 |
| Time to discharge | About 4 months after filing | Upon completing your 3-5 year repayment plan |
| Time on credit report | 10 years | 7 years |
| Court costs | $245 filing fee + $75 admin fee + $15 trustee surcharge | $235 filing fee + $75 admin fee |
| Average attorney fees | $1,500-$2,500 | $2,500-$5,000 (often $3,000 or less) |
Chapter 7 vs. Chapter 13: Key differences
Chapter 7: Selling assets sounds harsh, but exemptions mean most Chapter 7 cases are “no-asset,” so the filer’s debt gets discharged without selling anything. If your monthly income runs above your state’s median, you’ll need to pass a means test
Chapter 13: Its biggest advantage is that it can stop home foreclosure, as long as you fold past-due mortgage payments into your repayment plan and stay current going forward.
What debts can you get rid of with bankruptcy?
You can discharge most debts by filing for bankruptcy, but not all.
Debts eligible for discharge
- Unsecured debt from personal loans, credit cards and medical bills
- Back taxes more than three years old (as long as you filed your returns on time)
- Loans from friends and family
- Past due utility bills and rent payments
- Attorney fees
Debts ineligible for discharge
- Child support and alimony
- Back taxes fewer than three years old
- Federal student loans (in most cases)
- Criminal fines or restitution
- Personal injury debt due to driving while intoxicated
- Debt caused by willful and malicious injury
Bankruptcy pros and cons
Pros
- Relief from collections. Calls, lawsuits and wage garnishments generally stop once you file.
- Can stop foreclosure. Chapter 13 lets you catch up on past-due mortgage payments through your repayment plan.
- Can save your car. Reaffirming your car loan under Chapter 7 can prevent repossession.
- A financial reset. Discharged debt clears the way for healthier spending habits going forward.
Cons
- Credit score damage. Bankruptcy stays on your credit report for seven to 10 years.
- Limited borrowing during Chapter 13. You need trustee or court permission for new credit while repaying.
- Expensive credit afterward. Bad-credit loans post-bankruptcy can carry rates up to 35.99%, sometimes higher.
- Harder to rent. Landlords, especially rental companies, may be wary of a bankruptcy on record.
Check out LendingTree’s full guide on the pros and cons of filing bankruptcy.
Is bankruptcy right for you?
Good fit if:
- You’re positive you can’t afford your debt.
- You already have bad credit.
- You have assets to protect.
- You’re ready to stick to a budget and live frugally.
Not a fit if:
- You can afford your debt but are having a hard time juggling multiple bills.
- You want to protect your credit score.
- You earn at least an average income and don’t want to sell assets.
- Most of your debt is not eligible for discharge.
Bankruptcy alternatives
Bankruptcy is a huge decision. Before you file, know that there are debt relief alternatives that might make more sense for your financial situation.
Debt consolidation
Best if you can afford your debt and have excellent credit but are juggling multiple bills.
You take out one debt consolidation loan and use it to pay off multiple debts, leaving just one bill to manage. With a 720+ score, consolidation loans often carry lower rates than credit cards, so you may save money in the process.
Check out LendingTree’s guide on debt consolidation vs. bankruptcy.
Balance transfer credit card
Best if you can afford your credit card debt and have a credit score of at least 660.
You transfer multiple card balances to one card, typically with a 0% APR intro period of six to 21 months. Pay it off before that period ends, and you avoid interest — though most cards charge a 3% to 5% balance transfer fee.
Forbearance
Best if your creditor offers a forbearance program and you only need a little time to catch up.
Forbearance pauses your payments temporarily. Forbearance isn’t available with all creditors, but federal student loans are a common example of a type of debt with a formal forbearance program. Interest still accrues during the pause, so keep it as short as possible.
Debt management plan
Best if you want structured help managing your finances and are ready to stop using credit cards.
A credit counselor sets up a three- to five-year payment plan to get you out of unsecured debt and may negotiate lower rates with your creditors. You typically have to give up your cards during the plan, but that’s often the point.
Debt settlement
Best if you have bad credit and more debt than you can afford but aren’t ready to file for bankruptcy.
A third-party company negotiates with your creditors to reduce what you owe, while you stop paying and instead deposit funds into a settlement account. It’s risky; creditors aren’t obligated to cooperate, and your credit score will likely drop as missed payments get reported.
Check out LendingTree’s guide on debt consolidation vs. debt settlement.
How to file for bankruptcy
The process of filing for bankruptcy depends on the type you’re filing. However, if you’re considering filing without a lawyer, known as filing pro se, think twice.
“You need to talk to a lawyer,” says Phillip Shefferly, retired U.S. bankruptcy judge. “So many cases get dismissed because the filer didn’t file the right document, or didn’t file it on time. And almost nobody gets through Chapter 13 without a lawyer.”
Here’s what to generally expect:
- Complete credit counseling. It’s required before you file. Use the U.S. Department of Justice database to find an approved counselor.
- Hire an attorney. If you’re low income, you might qualify for free or low-cost legal aid. Check your state’s court website for more information.
- File your petition and pay court costs. This officially starts your case. File your supporting paperwork within seven to 14 days, ideally the same day, and the court will assign you a trustee.
- Enter repayment (Chapter 13 only). Payments toward your plan must start within 30 days of filing, possibly before your meeting of creditors.
- Attend a meeting of creditors. During this meeting, creditors and your trustee question you under oath, in person or virtually. It happens within 21 to 50 days of filing for Chapter 13, or within 45 days for Chapter 7.
- Complete a debtor education course. This is required before discharge. Chapter 7 filers have 45 days after the meeting of creditors; Chapter 13 filers finish theirs during repayment.
Running up new credit card debt, cashing out retirement accounts to pay creditors, transferring assets to family or friends or paying back only certain creditors can all raise red flags with the court and may even get your case dismissed. Talk to a bankruptcy attorney before making any major financial moves in the months leading up to filing.
Frequently asked questions
You can file for bankruptcy more than once, but if the court threw out your first case because you didn’t appear in court, you must wait 180 days to file again. The same is true if you voluntarily dismiss your case, or if you don’t follow the court orders given to you on your first bankruptcy.
Also, the court can throw out your case if it suspects fraud or that you’re lying about your finances.
Other important things to keep in mind:
- You have to wait eight years between Chapter 7 filings.
- If filing Chapter 7 to Chapter 13, you must wait four years between filings.
- If filing Chapter 13 to Chapter 7, you may need to wait six years between filings.
- You must wait two years between Chapter 13 filings.
→ Read LendingTree’s guide on how often you can file for bankruptcy.
Getting a car loan after bankruptcy is hard, but it may be possible.
If you filed Chapter 13, you typically need permission from your trustee or court. You’ll have to prove that you have a good reason to buy a car. Maybe your current car is unreliable and needs replacing, for example.
Once you get permission, you may need to stick to bad-credit car loans, which carry higher-than-average rates. Many lenders will automatically disqualify you with a bankruptcy on your credit history, but not all.
Chapter 7 filers can sometimes get a car loan during bankruptcy if they’re employed and wait until the meeting of creditors is over. Once your debt is discharged, you can get a car loan whenever you find a lender to approve you.
→ Read LendingTree’s guide on getting a car loan after bankruptcy.
Some people can get a personal loan after bankruptcy, but it depends. If you filed for Chapter 13, you usually need permission from your trustee or the court to take out a new loan.
You typically can’t get a personal loan during Chapter 7 bankruptcy, but you can after your debts are discharged, and you don’t need permission. Either way, you may have a hard time finding a bankruptcy-friendly lender.
→ Read LendingTree’s guide on getting a personal loan after bankruptcy.
After filing for bankruptcy, you must go through a waiting period before you can apply for most kinds of mortgages. Waiting periods vary by type of bankruptcy and mortgage, but generally:
- Conventional mortgages have a waiting period of two to four years.
- FHA loans have a waiting period of one to two years.
- VA loans have a waiting period of one to two years.
- USDA loans have a waiting period of one to three years.
→ Read LendingTree’s guides on qualifying for a mortgage and how to qualify for an FHA loan after bankruptcy.
Yes, but you’ll need to wait out a seasoning period
→ Read LendingTree’s guides on getting a home equity loan after bankruptcy and refinancing after bankruptcy.