Filing for bankruptcy is a serious decision. Only file for bankruptcy if it is the best way to deal with your money problems. This article only talks about some parts of the bankruptcy process. If you have questions, talk to a bankruptcy lawyer.
What is bankruptcy?
Bankruptcy gives you a fresh financial start. You must file a case in federal bankruptcy court. Filing bankruptcy stops all your creditors from asking you for money and collecting your debts. For some creditors, it stops them from ever coming after you again. For others, it only stops them for a little while.
In bankruptcy, you can:
- Get rid of most or all of your debts. This is a "discharge" of debts.
- Stop foreclosure on your house or manufactured home. It can give you time to catch up on missed payments.
- Stop repossession of a car or other property. It can also get back property after it was repossessed.
- Stop wage garnishment, debt collection harassment, and bad debt collection actions.
- Stop the shutoff of a utility. It can also get a utility turned back on.
- Let you challenge creditors who lied or cheated you or who are trying to collect more money than you owe.
Bankruptcy cannot fix every money problem. It is not the right choice for everyone. In bankruptcy, you cannot
- Wipe out all types of debt,
- Get rid of mortgages on your home, or car loans, unless you pay the debt or give up the property,
- Protect cosigners on your debts, or
- Get rid of debts you get after you file for bankruptcy.
Types of debt that bankruptcy will not wipe out
Bankruptcy can discharge (wipe out) all your debt in most cases. But bankruptcy will not wipe out:
- Money you owe for child support or alimony,
- Most fines and penalties you owe to government agencies,
- Most student loans, unless you can show the court that repaying them is an “undue hardship,"
- Debts not listed on your bankruptcy petition,
- Loans you got by knowingly giving false information to a creditor, who used that information to decide to give you the loan,
- Debts resulting from “willful and malicious” harm,
- Debts you got for driving while intoxicated, and
- Mortgages and other liens like car loans that are not paid in the bankruptcy case. Bankruptcy will wipe out your debt if you give up the property.
Cosigners
A friend or relative who cosigned your loan may have to pay repay all or part of the loan after you file for bankruptcy. If you file for Chapter 13, you may be able to protect cosigners in your Chapter 13 plan.
Future debt
You must pay bills you get on time after the date you filed for bankruptcy. Bankruptcy will not get rid of debt you get after you file for bankruptcy.
There are four types of bankruptcy cases. Most people file either Chapter 7 or Chapter 13.
Chapter 7 ("straight bankruptcy")
Chapter 7 is a “straight bankruptcy" or “liquidation.” You ask the court to wipe out your debts in exchange for giving up some of your property. The property is sold to pay back creditors. Exemptions protect certain property from being sold. People who file Chapter 7 usually keep all their property. Usually only very valuable property is taken.
Important
You cannot keep your house or car in a Chapter 7 case if you are behind on the payments. Mortgage holders and car loan creditors can take your property to repay the debt if you do not pay.
Not everyone can file a Chapter 7 case. If your income is over the median family income in Massachusetts, you may have to file a Chapter 13 case. If your income is over the limit, you must fill out a special form. The form gives detailed information about your income and expenses. The bankruptcy court can decide that you cannot file a Chapter 7 case if you have enough money to pay your unsecured creditors.
Chapter 13 ("reorganization")
Chapter 13 lets you pay all or a part of your debts over 3 to 5 years. In a Chapter 13 case, you can keep valuable property like your home and car. You must file a “plan” with the court showing how you will catch up on your missed payments. You must follow this payment plan and make regular payments. If you can catch all the way up, you can keep your house or car. You have 3 to5 years to catch up. You must also stay current with all your regular bills like your mortgage and utilities.
Consider filing a Chapter 13 case if you:
- Own your home and may lose it because of missed payments,
- Missed payments, but can catch up if you have more time, or
- Have valuable property that is not exempt, but you can afford to pay creditors from your income over time.
For a Chapter 13 case to work, you must have enough income during your case to:
- Pay your regular bills including rent and food, and
- Have enough extra money to make the plan payments to catch up on other debts.
Chapter 11
Chapter 11 is used by businesses and individuals with very large debts.
Chapter 12
Chapter 12 is for family farmers and fishers.
Learn more about what is involved in filing for bankruptcy.
In bankruptcy, you can:
- Get rid of most or all of your debts. This is a "discharge" of debts.
- Stop foreclosure on your house or manufactured home. It can give you time to catch up on missed payments.
- Stop repossession of a car or other property. It can also get back property after it was repossessed.
- Stop wage garnishment, debt collection harassment, and bad debt collection actions.
- Stop the shutoff of a utility. It can also get a utility turned back on.
- Let you challenge creditors who lied or cheated you or who are trying to collect more money than you owe.
Bankruptcy cannot fix every money problem. It is not the right choice for everyone. In bankruptcy, you cannot
- Wipe out all types of debt,
- Get rid of mortgages on your home, or car loans, unless you pay the debt or give up the property,
- Protect cosigners on your debts, or
- Get rid of debts you get after you file for bankruptcy.
Types of debt that bankruptcy will not wipe out
Bankruptcy can discharge (wipe out) all your debt in most cases. But bankruptcy will not wipe out:
- Money you owe for child support or alimony,
- Most fines and penalties you owe to government agencies,
- Most student loans, unless you can show the court that repaying them is an “undue hardship,"
- Debts not listed on your bankruptcy petition,
- Loans you got by knowingly giving false information to a creditor, who used that information to decide to give you the loan,
- Debts resulting from “willful and malicious” harm,
- Debts you got for driving while intoxicated, and
- Mortgages and other liens like car loans that are not paid in the bankruptcy case. Bankruptcy will wipe out your debt if you give up the property.
Cosigners
A friend or relative who cosigned your loan may have to pay repay all or part of the loan after you file for bankruptcy. If you file for Chapter 13, you may be able to protect cosigners in your Chapter 13 plan.
Future debt
You must pay bills you get on time after the date you filed for bankruptcy. Bankruptcy will not get rid of debt you get after you file for bankruptcy.
There are four types of bankruptcy cases. Most people file either Chapter 7 or Chapter 13.
Chapter 7 ("straight bankruptcy")
Chapter 7 is a “straight bankruptcy" or “liquidation.” You ask the court to wipe out your debts in exchange for giving up some of your property. The property is sold to pay back creditors. Exemptions protect certain property from being sold. People who file Chapter 7 usually keep all their property. Usually only very valuable property is taken.
Important
You cannot keep your house or car in a Chapter 7 case if you are behind on the payments. Mortgage holders and car loan creditors can take your property to repay the debt if you do not pay.
Not everyone can file a Chapter 7 case. If your income is over the median family income in Massachusetts, you may have to file a Chapter 13 case. If your income is over the limit, you must fill out a special form. The form gives detailed information about your income and expenses. The bankruptcy court can decide that you cannot file a Chapter 7 case if you have enough money to pay your unsecured creditors.
Chapter 13 ("reorganization")
Chapter 13 lets you pay all or a part of your debts over 3 to 5 years. In a Chapter 13 case, you can keep valuable property like your home and car. You must file a “plan” with the court showing how you will catch up on your missed payments. You must follow this payment plan and make regular payments. If you can catch all the way up, you can keep your house or car. You have 3 to5 years to catch up. You must also stay current with all your regular bills like your mortgage and utilities.
Consider filing a Chapter 13 case if you:
- Own your home and may lose it because of missed payments,
- Missed payments, but can catch up if you have more time, or
- Have valuable property that is not exempt, but you can afford to pay creditors from your income over time.
For a Chapter 13 case to work, you must have enough income during your case to:
- Pay your regular bills including rent and food, and
- Have enough extra money to make the plan payments to catch up on other debts.
Chapter 11
Chapter 11 is used by businesses and individuals with very large debts.
Chapter 12
Chapter 12 is for family farmers and fishers.
Learn more about what is involved in filing for bankruptcy.
What happens to my property if I file for bankruptcy?
If you file for bankruptcy, you will be able to keep some of your property. Other property you will have to give back.
In a Chapter 7 case, you can keep all “exempt” property. Exemptions are lists of items, money, and income that creditors cannot take.
Exemptions are different in each state. You use the exemptions from the state where you lived two years before you file for bankruptcy. If you lived in another state, you may have to use the exemptions from where you lived just over two years ago.
Important
In Massachusetts, you can choose to use federal exemptions or Massachusetts exemptions. You can't use both.
Federal bankruptcy exemptions
The federal bankruptcy exemptions include:
- $27,900 in equity in your home.
- $4,450 in equity in your car.
- $700 per item in any household goods up to a total of $14,875.
- $2,800 in things you need for your job (tools, books, etc.).
- $1,475 in any property up to $13,950, plus part of the unused exemption in your home.
- Social Security, unemployment compensation, veteran’s benefits, public assistance, and pension income — in any amount.
Massachusetts bankruptcy exemptions
The Massachusetts exemptions include:
- $500,000 in equity in your home if you file a declaration of homestead. If you own a home and have not filed a declaration, ask your lawyer to help you file one before you file bankruptcy.
- $7,500 in resale value for a car, or $15,000 if you are age 60 or older or disabled.
- Cash and savings up to $5,000, plus some wages, and money you got while on public assistance benefits.
- Household furniture up to $15,000.
- One computer and one television.
- $500 in money for utilities.
- “Wild card” exemption between $1,000 and $6,000 from unused exemptions.
Other notes
If you are a married couple who files together, double the amounts of the exemptions.
The value of your property in bankruptcy is not how much you paid for it. The value is what it costs to buy the item used. The amount will almost always be less than you paid, especially for furniture and cars.
To keep an item, an exemption only has to be enough to protect your equity in the property. Compare the exemption amount to the used value of the item minus any money that you owe on mortgages or liens.
For example
If you own a $200,000 house and you owe $100,000 on your mortgage, you have $100,000 in equity. You can protect the $200,000 home with a $100,000 exemption.
Exemptions will not stop a mortgage holder or car loan creditor from taking property if you are behind on your payments. You can only keep your property if you are behind on payments in a Chapter 13 case. To keep the property, you must pay the regular mortgage or lien payments.
For some loans like car loans and mortgages, if you get rid of your debt by filing for bankruptcy, you can't keep the car or house. Lenders who make these loans are “secured creditors.” Your car or home is called “secured property.” In bankruptcy, you can force secured creditors to take payments over time to catch up on missed payments. Or you can force the creditor to take back the property so you will owe no more money. But you usually cannot keep secured property unless you pay the debt.
Usually you will not lose your home or car during bankruptcy if:
- you stay current with the payments, and
- the equity in the property is all exempt.
Even if your property is not all exempt, you can keep it if you pay its non-exempt value in a Chapter 13 case.
Some creditors may have a “security interest” in your home, car, or other personal property. This means you gave that creditor a mortgage or lien on the property in exchange for borrowing money. Secured debt is different from other debt. Bankruptcy does not make security interests go away and let you keep the property. If you do not make payments on that debt, the creditor can sell the property to pay back the debt.
A Chapter 13 case gives you tools to keep property that has secured debt on it. You may be able to keep secured property by paying the creditor the value of the property instead of the whole amount owed on the debt. Or you can use Chapter 13 to catch up on back payments and get current on the loan.
You can also keep secured property in a Chapter 7 bankruptcy. You can agree to keep making payments on the debt until it is paid in full. Or you can pay the creditor all at once the amount that the property is worth.
If you agreed to give a creditor your household goods if you did not pay a loan, you can usually keep that property without making any more payments.
In either a Chapter 7 or 13 case if there is fraud or the creditor acts badly, you may be able to fight the debt and not have to pay it.
Yes. You can keep your exempt property and anything new you get after you file for bankruptcy.
Yes, creditors may take your money and things after you file bankruptcy. Within 180 days after you file your case, if you get:
- a non-exempt inheritance,
- property settlement, or
- life insurance money,
it can be taken to pay your creditors.
After your discharge, any secured property that you do not pay the bill for can be taken by the creditor to pay the debt.
You still owe any debt that was not discharged, like most student loans. The lender can still sue you to garnish your wages and collect money if you stop paying.
In a Chapter 7 case, you can keep all “exempt” property. Exemptions are lists of items, money, and income that creditors cannot take.
Exemptions are different in each state. You use the exemptions from the state where you lived two years before you file for bankruptcy. If you lived in another state, you may have to use the exemptions from where you lived just over two years ago.
Important
In Massachusetts, you can choose to use federal exemptions or Massachusetts exemptions. You can't use both.
Federal bankruptcy exemptions
The federal bankruptcy exemptions include:
- $27,900 in equity in your home.
- $4,450 in equity in your car.
- $700 per item in any household goods up to a total of $14,875.
- $2,800 in things you need for your job (tools, books, etc.).
- $1,475 in any property up to $13,950, plus part of the unused exemption in your home.
- Social Security, unemployment compensation, veteran’s benefits, public assistance, and pension income — in any amount.
Massachusetts bankruptcy exemptions
The Massachusetts exemptions include:
- $500,000 in equity in your home if you file a declaration of homestead. If you own a home and have not filed a declaration, ask your lawyer to help you file one before you file bankruptcy.
- $7,500 in resale value for a car, or $15,000 if you are age 60 or older or disabled.
- Cash and savings up to $5,000, plus some wages, and money you got while on public assistance benefits.
- Household furniture up to $15,000.
- One computer and one television.
- $500 in money for utilities.
- “Wild card” exemption between $1,000 and $6,000 from unused exemptions.
Other notes
If you are a married couple who files together, double the amounts of the exemptions.
The value of your property in bankruptcy is not how much you paid for it. The value is what it costs to buy the item used. The amount will almost always be less than you paid, especially for furniture and cars.
To keep an item, an exemption only has to be enough to protect your equity in the property. Compare the exemption amount to the used value of the item minus any money that you owe on mortgages or liens.
For example
If you own a $200,000 house and you owe $100,000 on your mortgage, you have $100,000 in equity. You can protect the $200,000 home with a $100,000 exemption.
Exemptions will not stop a mortgage holder or car loan creditor from taking property if you are behind on your payments. You can only keep your property if you are behind on payments in a Chapter 13 case. To keep the property, you must pay the regular mortgage or lien payments.
For some loans like car loans and mortgages, if you get rid of your debt by filing for bankruptcy, you can't keep the car or house. Lenders who make these loans are “secured creditors.” Your car or home is called “secured property.” In bankruptcy, you can force secured creditors to take payments over time to catch up on missed payments. Or you can force the creditor to take back the property so you will owe no more money. But you usually cannot keep secured property unless you pay the debt.
Usually you will not lose your home or car during bankruptcy if:
- you stay current with the payments, and
- the equity in the property is all exempt.
Even if your property is not all exempt, you can keep it if you pay its non-exempt value in a Chapter 13 case.
Some creditors may have a “security interest” in your home, car, or other personal property. This means you gave that creditor a mortgage or lien on the property in exchange for borrowing money. Secured debt is different from other debt. Bankruptcy does not make security interests go away and let you keep the property. If you do not make payments on that debt, the creditor can sell the property to pay back the debt.
A Chapter 13 case gives you tools to keep property that has secured debt on it. You may be able to keep secured property by paying the creditor the value of the property instead of the whole amount owed on the debt. Or you can use Chapter 13 to catch up on back payments and get current on the loan.
You can also keep secured property in a Chapter 7 bankruptcy. You can agree to keep making payments on the debt until it is paid in full. Or you can pay the creditor all at once the amount that the property is worth.
If you agreed to give a creditor your household goods if you did not pay a loan, you can usually keep that property without making any more payments.
In either a Chapter 7 or 13 case if there is fraud or the creditor acts badly, you may be able to fight the debt and not have to pay it.
Yes. You can keep your exempt property and anything new you get after you file for bankruptcy.
Yes, creditors may take your money and things after you file bankruptcy. Within 180 days after you file your case, if you get:
- a non-exempt inheritance,
- property settlement, or
- life insurance money,
it can be taken to pay your creditors.
After your discharge, any secured property that you do not pay the bill for can be taken by the creditor to pay the debt.
You still owe any debt that was not discharged, like most student loans. The lender can still sue you to garnish your wages and collect money if you stop paying.
After bankruptcy
You may be wondering what happens after your bankruptcy case ends and your debts are discharged.
Yes and no. If you are behind on your bills your credit may already be bad.
Filing for bankruptcy can stay on your credit record for 10 years. Old debts are listed on your report for 7 years. But because bankruptcy means you do not have to pay your old debts, you may be in a better position to pay your current bills. You may be able to get new credit.
Debts discharged in your case should have a zero balance on your credit report. This means you do not owe anything on the debt. Check your credit report after your bankruptcy discharge. Debts that show a balance owed will hurt your credit score and will make it harder or more expensive to get credit. File a dispute with the credit reporting agency if the information is not correct.
Utilities
Public utilities like the electric company cannot refuse or cut off service because you filed for bankruptcy. The utility can make you pay a deposit for future service. You must pay your bills as they come due after the date you filed for bankruptcy.
Discrimination
An employer or government agency cannot discriminate against you because you have filed for bankruptcy. With student loans, government agencies and private entities cannot discriminate against you because you filed for bankruptcy.
Driver's license
You may have lost your license because you couldn’t pay court-ordered damages caused in an accident. You can get your license back after you file for bankruptcy.
Yes and no. If you are behind on your bills your credit may already be bad.
Filing for bankruptcy can stay on your credit record for 10 years. Old debts are listed on your report for 7 years. But because bankruptcy means you do not have to pay your old debts, you may be in a better position to pay your current bills. You may be able to get new credit.
Debts discharged in your case should have a zero balance on your credit report. This means you do not owe anything on the debt. Check your credit report after your bankruptcy discharge. Debts that show a balance owed will hurt your credit score and will make it harder or more expensive to get credit. File a dispute with the credit reporting agency if the information is not correct.
Utilities
Public utilities like the electric company cannot refuse or cut off service because you filed for bankruptcy. The utility can make you pay a deposit for future service. You must pay your bills as they come due after the date you filed for bankruptcy.
Discrimination
An employer or government agency cannot discriminate against you because you have filed for bankruptcy. With student loans, government agencies and private entities cannot discriminate against you because you filed for bankruptcy.
Driver's license
You may have lost your license because you couldn’t pay court-ordered damages caused in an accident. You can get your license back after you file for bankruptcy.
Upsolve Detailed information about bankruptcy for the public. Upsolve can also help you prepare your Chapter 7 bankruptcy paperwork for free.
FAQs for consumers From the U.S. Department of Justice