What bankruptcy actually does
The day a bankruptcy is filed, an "automatic stay" kicks in. By federal law, almost every collection action against you must stop. That includes:
- Creditor phone calls and letters
- Wage garnishment
- Bank account levies
- Lawsuits and judgments (mostly)
- Foreclosure (temporarily)
- Repossession (temporarily)
- Utility shutoffs
The relief is immediate. Whether your debt ultimately gets wiped out (Chapter 7) or restructured (Chapter 13) depends on which chapter you file under.
Chapter 7 vs Chapter 13 — the only chart you need
| Chapter 7 ("Liquidation") | Chapter 13 ("Reorganization") | |
|---|---|---|
| Best for | Low income, mostly unsecured debt, no significant non-exempt assets | Higher income, behind on mortgage/car, want to keep secured property |
| How long it takes | 3 to 6 months | 3 to 5 years |
| What gets discharged | Most unsecured debt erased | Whatever isn't paid through the plan |
| Income test | Must pass means test | Must have regular income |
| Mortgage arrears | Cannot catch up — lose home if behind | Catch up missed payments through plan |
| Attorney fee | $1,000 – $2,500 | $3,000 – $5,000 (often paid through plan) |
| Court filing fee | $338 | $313 |
| Credit report impact | 10 years | 7 years |
How much does a bankruptcy lawyer cost?
Chapter 7 attorney fees typically run $1,000 to $2,500 for a standard case, plus the $338 court filing fee. Total out of pocket: $1,500 to $3,000. Most attorneys ask for the full fee before filing because attorney fees themselves can be discharged in Chapter 7 if not paid before filing.
Chapter 13 attorney fees are higher — $3,000 to $5,000 typically — but most of the fee can be paid through the repayment plan, meaning you may only need a few hundred dollars upfront. The court filing fee is $313 (also payable in installments).
Most bankruptcy firms offer free consultations and flat fees. For a deeper breakdown, see how much does a bankruptcy lawyer cost.
What you keep: exemptions
Bankruptcy law protects essentials through "exemptions." You can keep:
- Your home — up to a state-specific equity limit (varies dramatically: $0 in some states, unlimited in Florida and Texas)
- One vehicle — up to an equity limit, usually $4,000-$8,000
- Retirement accounts — 401(k), IRA, pension all generally fully protected (up to about $1.5M in IRAs)
- Basic household goods — furniture, clothing, appliances
- Tools of your trade — equipment needed for your job
- Life insurance cash value — varies by state
- Public benefits — Social Security, unemployment, disability
About 95% of Chapter 7 cases are "no-asset" cases, meaning the filer keeps everything they own. Your attorney will analyze your assets against your state's exemptions before filing.
What does NOT get discharged
- Most student loans — only dischargeable through a separate "undue hardship" lawsuit
- Recent tax debt — certain older taxes can be discharged with conditions
- Child support and alimony
- Court-ordered restitution
- Debts from fraud or DUI judgments
- Some personal injury debts
Should I file bankruptcy?
Common signs that bankruptcy makes sense:
- You're being sued by a creditor
- Your wages are being garnished
- You're behind on your mortgage or car
- You owe more in unsecured debt than you make in 6 months
- You're using credit cards to pay other credit cards
- You're considering withdrawing from a 401(k) to pay debt (don't — bankruptcy protects retirement accounts)
Common signs to think twice or use Chapter 13 instead:
- You expect a large lawsuit settlement, inheritance, or commission within 6 months
- Most of your debt is non-dischargeable (student loans, recent taxes, child support)
- You have significant non-exempt equity in real estate
- You need to keep secured property and are behind on payments
Find a bankruptcy lawyer in your city
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Related guides
How Much Does a Bankruptcy Lawyer Cost?
Chapter 7 vs 13 fee comparison and total out-of-pocket cost.
Chapter 7 vs Chapter 13
The deeper comparison: which one is right for your situation?
The Bankruptcy Means Test
What it is, who fails it, and what to do if you don't qualify for Chapter 7.
How Bankruptcy Affects Your Credit
The honest timeline of credit recovery after filing.
Bankruptcy and Foreclosure
How Chapter 13 saves homes — and how Chapter 7 cannot.
Student Loans in Bankruptcy
The undue hardship standard and recent legal changes.