Albin Renauer has been working to make law affordable and accessible to everyone for more than 30 years. A co-author of the best selling How to File for Chapter 7 Bankruptcy, (Nolo, 21st ed, 2019), Albin launched LegalConsumer.com (aka Bankruptcy By Zip Code) and the means test calculator in 2006 as a localized online legal companion to the bankruptcy book. Albin promoted public access to law on Internet since 1995. Before the Internet (??!!) Albin led Nolo's development of the best-selling WillMaker and Living Trust Maker software. Albin was a staff attorney for Chief Justice Rose Bird of the California Supreme Court from 1985-1986. Albin received his J.D. and B.A. from the University of Michigan (Go Blue!). He was raised in the Detroit area by honest, hard-working, working-class parents, and still roots for the Tigers.
This website focuses on the two most common types of bankruptcy filed by individuals: Chapter 7 and Chapter 13. But here’s a quick summary of the six types of bankruptcy most commonly filed under the bankruptcy code; they get their names from the chapters where they appear in the code.
Chapter 7 Bankruptcy
Chapter 7 lets individuals wipe out (“discharge”) most kinds of debt in just a few months. You get to keep certain kinds of property—for example, at least some of the equity in your home, your car, clothing, personal items, and property that is essential to your profession. This type of property is called “exempt” property, and many Chapter 7 filers find that exemptions cover most of what they own. If you have nonexempt property, the bankruptcy trustee will sell it to repay your creditors as much as possible. To qualify for Chapter 7, you must pass the “means test,” showing that your income is less than the state median income for your family size. Most bankruptcies filed in the U.S. are Chapter 7 bankruptcies. (For more information, see How Chapter 7 Bankruptcy Works.)
Chapter 13 Bankruptcy
Under Chapter 13, an individual repays some or all of their debts under a payment plan approved by the bankruptcy court. Chapter 13 bankruptcy takes three to five years to complete. Those who choose Chapter 13 usually do so because they want to protect certain kinds of non-exempt property or because they have too much income to qualify for Chapter 7. (Most people prefer to file for Chapter 7 if they qualify, because Chapter 7 allows you to erase most kinds of debt in just three to six months.) You can qualify for Chapter 13 if you have steady income and your debts don’t exceed the limits set by the bankruptcy code. (For more information, see How Chapter 13 Bankruptcy Works.)
Chapter 9 Bankruptcy
Cities or towns may file for Chapter 9 bankruptcy if they are overwhelmed by debt. It allows municipalities to develop a plan for handling debts while holding creditors at bay.
Chapter 11 Bankruptcy
Chapter 11, often called “reorganization bankruptcy” is usually used by businesses. It allows a business to work out a court-supervised plan to pay back creditors while keeping its doors open. We mostly hear about big businesses filing for Chapter 11, but small businesses or even individuals can use it, too. The trouble is that Chapter 11 is usually too expensive for smaller undertakings and anyone other than the most wealthy individuals, because it entails lots of meetings, court hearings, and big bills from bankruptcy lawyers.
Chapter 12 Bankruptcy
This type of bankruptcy is a lot like Chapter 13 except it’s available only for family farmers and fishermen. It’s specially designed to help farmers and fishermen keep their livelihoods while paying off debts under a court-approved plan. Chapter 12 has a higher debt threshold and more options to protect property than Chapter 13.
Chapter 15 Bankruptcy
Chapter 15 is for people or organizations that have debts and property in the United States and another country. Under this chapter, federal bankruptcy courts can more easily limit their involvement in the case to just the property and people in the United States.
Do I qualify for bankruptcy?
To qualify for Chapter 7 bankruptcy, you must show that either:
your income is below Ohio’s median income for your family size, or
your income and expenses, calculated together, leave you unable to pay your debts. This is determined under a complex formula called the bankruptcy means test.
If you don't qualify for Chapter 7, you may still qualify to file under Chapter 13. To qualify for chapter 13, your debt must be under the limit set by the bankruptcy code and you must be current on your tax filings for the last four years.
Secured debt vs. unsecured debt: What's the difference?
Secured debt. A secured debt is backed up by property -- like your home or a car -- which is also known as "collateral." The creditor can take back the collateral if you don't repay the debt.
Secured debt can be voluntary -- for example, when you get a mortgage to buy real estate or a loan to buy a car. It can also be involuntary -- say, if the government puts a lien on your property for back taxes.
Unsecured debt. Unsecured debt isn't backed up by collateral. Lenders give you credit without "security," relying on your credit history and your promise to repay. Unsecured debt can include everything from your credit cards to your gym membership, your medical bills to a loan from a friend.
In bankruptcy, unsecured debt is divided into priority and non-priority claims. If there's any money available to pay your creditors, priority claims come first. Non-priority unsecured debts are rarely paid in bankruptcy.
Common priority unsecured debts include:
legal fees related to the bankruptcy filing
child support and alimony
federal or state income taxes
a certain amount of wages and benefits owed to employees, and
claims against you for operating a vehicle under the influence of alcohol or drugs.
You're not legally required to use a lawyer to file for bankruptcy. Whether you're a good candidate for handling your own bankruptcy depends on the complexity of your financial situation and your willingness to take the time to learn the rules of bankruptcy. If you're not the type of person that is willing to carefully read a lot of information and follow instructions to the letter—or if your situation has you feeling too overwhelmed to do so—then self-help is probably not for you.
Evaluating your financial situation. If you owe only unsecured debt—like credit card charges or medical bills—you may well be able to file for bankruptcy on your own. But you must also consider are the amount and type of property you own. If you own your home, have substantial retirement savings, or other substantial assets, you may want to consult a lawyer to make sure your property is not at risk.
A good way to approach the decision of whether to hire a lawyer is to buy (and read) Nolo's book How to File for Chapter 7 Bankruptcy. It will give you a good idea of what issues may arise when you file, and flags specific situations when a lawyer's help is called for. It will also give you a good sense of whether the complexity of the filing process is something you'll want to take on alone. (If your financial situation is simple, but you just don't want to deal with the forms, you might consider a using a bankruptcy petition preparer to handle the form preparation.)
Other resources, other opinions. Lots of people have opinions on the topic of whether you should get a lawyer. Most lawyers—surprise!—think you should always have a lawyer. But, seriously, they make some worthwhile points that are worth reading as you decide what to do.
Finding a lawyer. For more information about finding a qualified bankruptcy lawyer near you, see the Lawyers section of this website.
Where do I file for bankruptcy?
Most people file for bankruptcy in the federal district court closest to where they live. However, if you run a business in a different district and most of your property is located there, you may have to file in that location.
Also, if you've moved in the past six months (180 days), you may have to file in the federal district court where you used to live. It all depends on where the greater portion of your property has been for most of the past 180 days.
Wherever you're required to file, know that you can handle most of your business with the court, including filing your bankruptcy forms, by mail. However, you will need to visit the courthouse in person at least once, for a meeting with the bankruptcy trustee.
Every state has laws that designate certain types of property (some or all of the equity in your home, some personal possessions, tools that you need for your work) that are off-limits to unsecured creditors—that is, creditors that don't have a lien on your property. Credit card debt and medical bills are the two most common types of unsecured debt.
Unsecured creditors cannot force you to sell your exempt property to pay off your debt. Even if the creditor goes to court, wins a court judgment against you, and takes steps to attach a lien to your property, you are still entitled to your exemption amount before the creditor gets any proceeds form a sale.
If you sell your exempt property voluntarily, the creditor has a right to have its lien paid from the sale proceeds before you receive anything. As a practical matter, most of the property of people who file for Chapter 7 bankruptcy is exempt, so they don't want to sell what they have. If all of your property is protected by exemption laws, you are said to be "judgment proof"—meaning that creditors can't collect anything from you, whether or not you file for bankruptcy.
One important thing to remember is that an exemption protects only the "equity" in your property. That's the difference between the value of the property and what you owe to creditors—like your mortgage lender—who have a secured interest in it.
If you owe $18,000 on a $20,000 car, you have only $2,000 in equity. If your state has at least a $2,000 exemption for motor vehicles, that will be enough to protect the car in bankruptcy—but you must continue to make the payments to the secured creditor.
On the other hand, if you own the vehicle free and clear, then your equity is the full value of the vehicle, and a $2,000 exemption would not be enough to protect it. The trustee would force the sale of the car, you would get your exemption amount, and the trustee would get the rest of the proceeds to distribute to the unsecured creditors.
To learn what property is exempt in your state, see the Exemptions section of this website.
Do I have to get credit counseling before I file for bankruptcy?
Yes. Before you file for bankruptcy, you must take a brief credit counseling class and get a certificate proving that you have done so. If you are planning to file jointly with your spouse, you can both attend the same counseling session, but each of you must get a separate certificate. You can usually take a class online or over the phone.
Many critics of federal bankruptcy law see the credit counseling requirement as a bureaucratic obstacle for already-desperate debtors. Perhaps so. But try to make the most of your 90-minute session by getting as much free information as you can. You may be able to use it as a way to get a second opinion about your financial situation, and to gauge whether bankruptcy is, indeed, the right choice for your situation. (Keep in mind, however, that a credit counselor is not legally allowed to tell you whether or not you should file for bankruptcy.)
Everyone who files for bankruptcy must attend a 341 hearing, which is also called a "creditors meeting." The meeting is conducted by the bankruptcy trustee assigned to your case. The trustee will put you under oath and may ask you questions about the information you've provided on your bankruptcy forms. Creditors may also show up at the hearing to ask you questions, but it's not common for them to do so.
Bankruptcy law also requires the trustee to ask you questions to be sure you understand how bankruptcy works and the potential consequences of filing bankruptcy, such as the effect on your credit record.
For most bankruptcy filers, this will be your only trip to the courthouse (or during the Cornavirus, a virtual trip to the courthouse, via a phone meeting. See below). Most court websites post schedules of 341 hearings, and when you file, you will be notified of your hearing date. When you show up for your hearing, you will find that many other people have hearings set for the same day. You will sit and wait for your name to be called--usually in a room somewhere in the courthouse or federal building, but probably not in a courtroom.
U.S. TRUSTEE PROGRAM EXTENDS TELEPHONIC OR VIDEO SECTION 341 MEETINGS
August 28, 2020
The U.S. Trustee Program has extended the requirement that section 341 meetings be conducted by telephone or video appearance to all cases filed during the period of the President’s “Proclamation on Declaring a National Emergency Concerning the Novel Coronavirus Disease (COVID-19) Outbreak” issued March 13, 2020, and ending on the date that is 60 days after such declaration terminates. However, the U.S. Trustee may approve a request by a trustee in a particular case to continue the section 341 meeting to an in-person meeting in a manner that complies with local public health guidance, if the U.S. Trustee determines that an in-person examination of the debtor is required to ensure the completeness of the meeting or the protection of estate property. This policy may be revised at the discretion of the Director of the United States Trustee Program.
A lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the court. A nonexclusive list of adversary proceedings is set forth in Fed. R. Bankr. P. 7001.
An agreement to continue performing duties under a contract or lease.
An injunction that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed.
A legal procedure for dealing with debt problems of individuals and businesses; specifically, a case filed under one of the chapters of title 11 of the United States Code (the Bankruptcy Code).
An officer of the judiciary serving in the judicial districts of Alabama and North Carolina who, like the U.S. trustee, is responsible for supervising the administration of bankruptcy cases, estates, and trustees; monitoring plans and disclosure statements; monitoring creditors' committees; monitoring fee applications; and performing other statutory duties. Compare U.S. trustee.
The informal name for title 11 of the United States Code (11 U.S.C. §§ 101-1330), the federal bankruptcy law.
The bankruptcy judges in regular active service in each district; a unit of the district court.
All legal or equitable interests of the debtor in property at the time of the bankruptcy filing. (The estate includes all property in which the debtor has an interest, even if it is owned or held by another person.)
A judicial officer of the United States district court who is the court official with decision-making power over federal bankruptcy cases.
The document filed by the debtor (in a voluntary case) or by creditors (in an involuntary case) by which opens the bankruptcy case. (There are official forms for bankruptcy petitions.)
The chapter of the Bankruptcy Code providing for "liquidation,"(i.e., the sale of a debtor's nonexempt property and the distribution of the proceeds to creditors.)
The chapter of the Bankruptcy Code providing for reorganization of municipalities (which includes cities and towns, as well as villages, counties, taxing districts, municipal utilities, and school districts).
The chapter of the Bankruptcy Code providing (generally) for reorganization, usually involving a corporation or partnership. (A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in chapter 11.)
The chapter of the Bankruptcy Code providing for adjustment of debts of a "family farmer," or a "family fisherman" as those terms are defined in the Bankruptcy Code.
The chapter of the Bankruptcy Code providing for adjustment of debts of an individual with regular income. (Chapter 13 allows a debtor to keep property and pay debts over time, usually three to five years.)
The chapter of the Bankruptcy Code dealing with cases of cross-border insolvency.
A creditor's assertion of a right to payment from the debtor or the debtor's property.
Bankruptcy judges's approval of a plan of reorganization or liquidation in chapter 11, or payment plan in chapter 12 or 13.
A debtor whose debts are primarily consumer debts.
Debts incurred for personal, as opposed to business, needs.
Those matters, other than objections to claims, that are disputed but are not within the definition of adversary proceeding contained in Rule 7001.
A claim that may be owed by the debtor under certain circumstances, e.g., where the debtor is a cosigner on another person's loan and that person fails to pay.
One to whom the debtor owes money or who claims to be owed money by the debtor.
Generally refers to two events in individual bankruptcy cases: (1) the "individual or group briefing" from a nonprofit budget and credit counseling agency that individual debtors must attend prior to filing under any chapter of the Bankruptcy Code; and (2) the "instructional course in personal financial management" in chapters 7 and 13 that an individual debtor must complete before a discharge is entered. There are exceptions to both requirements for certain categories of debtors, exigent circumstances, or if the U.S. trustee or bankruptcy administrator have determined that there are insufficient approved credit counseling agencies available to provide the necessary counseling.
see 341 meeting
current monthly income
The average monthly income received by the debtor over the six calendar months before commencement of the bankruptcy case, including regular contributions to household expenses from nondebtors and income from the debtor's spouse if the petition is a joint petition, but not including social security income and certain other payments made because the debtor is the victim of certain crimes. 11 U.S.C. § 101(10A).
A person who has filed a petition for relief under the Bankruptcy Code.
see credit counseling
An individual (or business) against whom a lawsuit is filed.
A release of a debtor from personal liability for certain dischargeable debts set forth in the Bankruptcy Code. (A discharge releases a debtor from personal liability for certain debts known as dischargeable debts and prevents the creditors owed those debts from taking any action against the debtor to collect the debts. The discharge also prohibits creditors from communicating with the debtor regarding the debt, including telephone calls, letters, and personal contact.)
A debt for which the Bankruptcy Code allows the debtor's personal liability to be eliminated.
A written document prepared by the chapter 11 debtor or other plan proponent that is designed to provide "adequate information" to creditors to enable them to evaluate the chapter 11 plan of reorganization.
The value of a debtor's interest in property that remains after liens and other creditors' interests are considered. (Example: If a house valued at $100,000 is subject to a $80,000 mortgage, there is $20,000 of equity.)
executory contract or lease
Generally includes contracts or leases under which both parties to the agreement have duties remaining to be performed. (If a contract or lease is executory, a debtor may assume it or reject it.)
exemptions, exempt property
Certain property owned by an individual debtor that the Bankruptcy Code or applicable state law permits the debtor to keep from unsecured creditors. For example, in some states the debtor may be able to exempt all or a portion of the equity in the debtor's primary residence (homestead exemption), or some or all "tools of the trade" used by the debtor to make a living (i.e., auto tools for an auto mechanic or dental tools for a dentist). The availability and amount of property the debtor may exempt depends on the state the debtor lives in.
Any relative of the debtor or of a general partner of the debtor; partnership in which the debtor is a general partner; general partner of the debtor; or a corporation of which the debtor is a director, officer, or person in control.
insider (of corporate debtor)
A director, officer, or person in control of the debtor; a partnership in which the debtor is a general partner; a general partner of the debtor; or a relative of a general partner, director, officer, or person in control of the debtor.
A court-approved mechanism under which two or more cases can be administered together. (Assuming no conflicts of interest, these separate businesses or individuals can pool their resources, hire the same professionals, etc.)
One bankruptcy petition filed by a husband and wife together.
Section 707(b)(2) of the Bankruptcy Code applies a "means test" to determine whether an individual debtor's chapter 7 filing is presumed to be an abuse of the Bankruptcy Code requiring dismissal or conversion of the case (generally to chapter 13). Abuse is presumed if the debtor's aggregate current monthly income (see definition above) over 5 years, net of certain statutorily allowed expenses is more than (i) $12,850, or (ii) 25% of the debtor's nonpriority unsecured debt, as long as that amount is at least $7,700. The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income.
motion to lift the automatic stay
A request by a creditor to allow the creditor to take action against the debtor or the debtor's property that would otherwise be prohibited by the automatic stay.
A chapter 7 case where there are no assets available to satisfy any portion of the creditors' unsecured claims.
A debt that cannot be eliminated in bankruptcy. Examples include a home mortgage, debts for alimony or child support, certain taxes, debts for most government funded or guaranteed educational loans or benefit overpayments, debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs, and debts for restitution or a criminal fine included in a sentence on the debtor's conviction of a crime. Some debts, such as debts for money or property obtained by false pretenses and debts for fraud or defalcation while acting in a fiduciary capacity may be declared nondischargeable only if a creditor timely files and prevails in a nondischargeability action.
A trustee's or creditor's objection to the debtor being released from personal liability for certain dischargeable debts. Common reasons include allegations that the debt to be discharged was incurred by false pretenses or that debt arose because of the debtor's fraud while acting as a fiduciary.
objection to exemptions
A trustee's or creditor's objection to the debtor's attempt to claim certain property as exempt from liquidation by the trustee to creditors.
A party who has standing to be heard by the court in a matter to be decided in the bankruptcy case. The debtor, the U.S. trustee or bankruptcy administrator, the case trustee and creditors are parties in interest for most matters.
A business not authorized to practice law that prepares bankruptcy petitions.
A debtor's detailed description of how the debtor proposes to pay creditors' claims over a fixed period of time.
A person or business that files a formal complaint with the court.
A transfer of the debtor's property made after the commencement of the case.
The arrangement (or rearrangement) of a debtor's property to allow the debtor to take maximum advantage of exemptions. (Prebankruptcy planning typically includes converting nonexempt assets into exempt assets.)
preference or preferential debt payment
A debt payment made to a creditor in the 90-day period before a debtor files bankruptcy (or within one year if the creditor was an insider) that gives the creditor more than the creditor would receive in the debtor's chapter 7 case.
presumption of abuse
see means test
The Bankruptcy Code's statutory ranking of unsecured claims that determines the order in which unsecured claims will be paid if there is not enough money to pay all unsecured claims in full. For example, under the Bankruptcy Code's priority scheme, money owed to the case trustee or for prepetition alimony and/or child support must be paid in full before any general unsecured debt (i.e. trade debt or credit card debt) is paid.
An unsecured claim that is entitled to be paid ahead of other unsecured claims that are not entitled to priority status. Priority refers to the order in which these unsecured claims are to be paid.
proof of claim
A written statement and verifying documentation filed by a creditor that describes the reason the debtor owes the creditor money. (There is an official form for this purpose.)
property of the estate
All legal or equitable interests of the debtor in property as of the commencement of the case.
An agreement by a chapter 7 debtor to continue paying a dischargeable debt (such as an auto loan) after the bankruptcy, usually for the purpose of keeping collateral (i.e. the car) that would otherwise be subject to repossession.
Detailed lists filed by the debtor along with (or shortly after filing) the petition showing the debtor's assets, liabilities, and other financial information. (There are official forms a debtor must use.)
A creditor holding a claim against the debtor who has the right to take and hold or sell certain property of the debtor in satisfaction of some or all of the claim.
Debt backed by a mortgage, pledge of collateral, or other lien; debt for which the creditor has the right to pursue specific pledged property upon default. Examples include home mortgages, auto loans and tax liens.
small business case
A special type of chapter 11 case in which there is no creditors' committee (or the creditors' committee is deemed inactive by the court) and in which the debtor is subject to more oversight by the U.S. trustee than other chapter 11 debtors. The Bankruptcy Code contains certain provisions designed to reduce the time a small business debtor is in bankruptcy.
statement of financial affairs
A series of questions the debtor must answer in writing concerning sources of income, transfers of property, lawsuits by creditors, etc. (There is an official form a debtor must use.)
statement of intention
A declaration made by a chapter 7 debtor concerning plans for dealing with consumer debts that are secured by property of the estate.
Putting the assets and liabilities of two or more related debtors into a single pool to pay creditors. (Courts are reluctant to allow substantive consolidation since the action must not only justify the benefit that one set of creditors receives, but also the harm that other creditors suffer as a result.)
The meeting of creditors required by section 341 of the Bankruptcy Code at which the debtor is questioned under oath by creditors, a trustee, examiner, or the U.S. trustee about his/her financial affairs. Also called creditors' meeting.
Any mode or means by which a debtor disposes of or parts with his/her property.
The representative of the bankruptcy estate who exercises statutory powers, principally for the benefit of the unsecured creditors, under the general supervision of the court and the direct supervision of the U.S. trustee or bankruptcy administrator. The trustee is a private individual or corporation appointed in all chapter 7, chapter 12, and chapter 13 cases and some chapter 11 cases. The trustee's responsibilities include reviewing the debtor's petition and schedules and bringing actions against creditors or the debtor to recover property of the bankruptcy estate. In chapter 7, the trustee liquidates property of the estate, and makes distributions to creditors. Trustees in chapter 12 and 13 have similar duties to a chapter 7 trustee and the additional responsibilities of overseeing the debtor's plan, receiving payments from debtors, and disbursing plan payments to creditors.
An officer of the Justice Department responsible for supervising the administration of bankruptcy cases, estates, and trustees; monitoring plans and disclosure statements; monitoring creditors' committees; monitoring fee applications; and performing other statutory duties. Compare, bankruptcy administrator.
A debt secured by property that is worth less than the full amount of the debt.
A claim for which a specific value has not been determined.
A debt that should have been listed by the debtor in the schedules filed with the court but was not. (Depending on the circumstances, an unscheduled debt may or may not be discharged.)
A claim or debt for which a creditor holds no special assurance of payment, such as a mortgage or lien; a debt for which credit was extended based solely upon the creditor's assessment of the debtor's future ability to pay.