Declaring yourself bankrupt means you’re filing a legal petition with the U.S. Bankruptcy Court to either eliminate your debts entirely or create a manageable repayment plan. Think of it as hitting the reset button on your finances—legally.
Under federal bankruptcy laws, you get protection from creditors while the court figures out the best way to handle your debt situation. That could mean wiping the slate clean (Chapter 7) or setting up a structured payment plan (Chapter 13). Either way, you’re saying, “I need help, and I’m taking the legal route to get it.”
Chapter 7 vs. Chapter 13: Which One Is Right for You?
Before you even start the paperwork, you need to figure out which type of bankruptcy fits your situation. There are two main options for individuals:
Chapter 7 Bankruptcy: The Fresh Start
Best for: People with little income and mostly unsecured debts like credit cards and medical bills.
Chapter 7 is sometimes called “liquidation bankruptcy” because a court-appointed trustee can sell your non-exempt assets to pay creditors. But don’t panic—most people keep their homes, cars, and personal belongings thanks to exemption laws.
The process is relatively quick (3-6 months), and at the end, most of your unsecured debts get discharged. You walk away without owing those debts anymore.
The catch? You need to pass the “means test,” which looks at your income compared to your state’s median. If you make too much money, you might not qualify for Chapter 7.
Chapter 13 Bankruptcy: The Repayment Plan
Best for: People with steady income who can afford to repay at least some of their debts over time.
Chapter 13 lets you keep your assets while you follow a court-approved repayment plan for 3-5 years. You make monthly payments to a trustee, who distributes the money to your creditors. After you complete the plan, any remaining eligible debts get discharged.
This option works well if you’re behind on your mortgage or car payments and need time to catch up without losing your property. If you’re struggling with multiple debts, consider exploring debt relief programs that might help you understand all your options before filing.
Step-by-Step: How to Declare Yourself Bankrupt
Ready to move forward? Here’s the actual process, broken down into manageable steps:
Step 1: Complete Credit Counseling
Before you can file, federal law requires you to complete a credit counseling course from an approved agency within 180 days before filing. This typically costs $10-50 and can be done online or over the phone.
The counselor will review your finances and discuss alternatives to bankruptcy. Once completed, you’ll receive a certificate that you must file with your bankruptcy petition. Looking for guidance? Check out the best free credit counseling services available.
Step 2: Gather Your Financial Documents
You’ll need to compile a complete picture of your financial life. Here’s what the court requires:
| Document Type | What You Need |
| Income Proof | Pay stubs, tax returns (last 2 years), profit/loss statements if self-employed |
| Debt List | Names and addresses of all creditors, account numbers, amounts owed |
| Asset Information | Property deeds, vehicle titles, bank statements, investment accounts |
| Monthly Expenses | Rent/mortgage, utilities, food, transportation, insurance, medical costs |
| Recent Transactions | Any large payments, transfers, or asset sales in the past 2 years |
| Other Documents | Divorce decrees, foreclosure notices, lawsuit papers |
Missing documents can delay your case or even get it dismissed, so be thorough.
Step 3: Take the Means Test (Chapter 7 Only)
If you’re filing Chapter 7, you must complete the means test to prove you can’t afford to repay your debts. The test compares your average monthly income over the past six months to your state’s median income.
If your income is below the median, you automatically qualify. If it’s above, you’ll need to calculate your disposable income after allowed expenses. The math gets complicated, which is one reason many people hire an attorney for this part.
Step 4: File Your Bankruptcy Petition
This is the big moment. You (or your attorney) will file your bankruptcy petition with your local U.S. Bankruptcy Court. The petition includes:
- Voluntary petition form: Basic information about you and your case
- Schedules of assets and liabilities: Complete lists of what you own and owe
- Statement of financial affairs: Details about your income, expenses, and recent financial transactions
- Credit counseling certificate: Proof you completed the required counseling
- Means test form (Chapter 7) or proposed repayment plan (Chapter 13)
You’ll also need to pay a filing fee: $338 for Chapter 7 or $313 for Chapter 13. If you can’t afford it, you can request to pay in installments or apply for a fee waiver.
Step 5: The Automatic Stay Takes Effect
As soon as you file, something magical happens: the automatic stay goes into effect immediately. This is a court order that stops almost all collection actions against you.
That means:
- No more harassing phone calls from creditors
- Wage garnishments stop
- Foreclosure proceedings pause
- Evictions halt (in most cases)
- Lawsuits freeze
The automatic stay gives you breathing room while your case moves through the court system. If you’re wondering how to get rid of debt without filing bankruptcy, this protection is one of the key benefits you’d be giving up.
Step 6: Meet with the Bankruptcy Trustee
About 30-45 days after filing, you’ll attend a “341 meeting” (named after Section 341 of the Bankruptcy Code) or “meeting of creditors.” Don’t let the name scare you—creditors rarely show up.
The trustee will ask you questions under oath about your finances and your bankruptcy paperwork. Questions typically include:
- Did you list all your assets and debts?
- Have you filed bankruptcy before?
- Did you read your petition before signing it?
- Is all the information accurate?
Be honest and straightforward. The trustee isn’t trying to trick you—they just want to verify your information and look for any red flags.
Step 7: Complete Financial Education Course
After your 341 meeting but before your debts can be discharged, you must complete a debtor education course. This is different from the pre-filing credit counseling and focuses on money management, budgeting, and using credit responsibly.
The course typically costs $10-50 and takes about 2 hours. Once finished, you’ll file a certificate with the court.
Step 8: Receive Your Discharge
Chapter 7: About 60-90 days after the 341 meeting, the court issues your discharge order. Most unsecured debts are eliminated, and creditors can no longer try to collect them.
Chapter 13: After you successfully complete your 3-5 year repayment plan, the court discharges your remaining eligible debts.
The discharge order is your fresh start. You’re officially free from the legal obligation to repay those debts.
Do You Really Need a Lawyer?
Technically? No. You can file bankruptcy on your own (called “pro se” filing). The forms are publicly available, and the court clerks can provide basic procedural information.
Realistically? Hiring a bankruptcy attorney is highly recommended. Here’s why:
- Complexity: Bankruptcy law is complicated. One mistake on your paperwork can delay your case or get it dismissed entirely.
- Exemptions: An experienced attorney knows how to maximize exemptions to protect your property.
- Strategy: They can advise whether Chapter 7 or Chapter 13 is better for your specific situation.
- Peace of mind: You’ll have someone handling the legal stuff while you focus on rebuilding.
Bankruptcy attorneys typically charge $1,000-$3,500 depending on your location and case complexity. Many offer payment plans since they understand you’re struggling financially.
If you absolutely can’t afford an attorney, look for legal aid organizations in your area that offer free or low-cost bankruptcy assistance.
What Happens to Your Assets?
This is the question that keeps people up at night: “Will I lose everything?”
The short answer is no—most people don’t. Federal and state laws provide exemptions that protect essential assets like:
- Your primary residence (up to a certain equity amount)
- One vehicle (up to a certain value)
- Household furnishings and clothing
- Retirement accounts (401(k), IRA)
- Tools needed for your job
- Personal items
The exemption amounts vary by state. Some states let you choose between federal and state exemptions, while others require you to use the state exemptions.
Non-exempt property—things like vacation homes, expensive collectibles, or luxury vehicles—might be sold by the trustee to pay creditors in Chapter 7. In Chapter 13, you keep your assets but might need to pay more into your repayment plan.
The Credit Score Reality Check
Let’s not sugarcoat this: bankruptcy will hurt your credit score initially. How much and for how long depends on which chapter you file:
- Chapter 7: Stays on your credit report for 10 years
- Chapter 13: Stays on your credit report for 7 years
Your score might drop 150-200 points initially. But here’s the surprising part: many people see their scores start recovering within a year or two.
Why? Because bankruptcy eliminates the debt that was dragging down your score. With proper financial habits—paying bills on time, keeping credit utilization low, budgeting wisely—you can rebuild your credit faster than you’d think.
Some people even qualify for mortgages within 2-4 years after bankruptcy discharge. The key is demonstrating responsible financial behavior post-bankruptcy.
Which Debts Actually Get Discharged?
Not all debts are created equal in bankruptcy court. Here’s what typically does and doesn’t get eliminated:
Usually Discharged:
- Credit card debt
- Medical bills
- Personal loans
- Past-due utility bills
- Collection accounts
- Most old tax debts (over 3 years old, under certain conditions)
Usually NOT Discharged:
- Student loans (except in extreme hardship cases)
- Child support and alimony
- Recent tax debts
- Government fines and penalties
- Court-ordered restitution
- Debts from fraud or willful misconduct
- Secured debts (unless you surrender the collateral)
If most of your debt falls into the “not discharged” category, bankruptcy might not help as much as you hope.
Can You File Bankruptcy More Than Once?
Yes, but there are strict waiting periods:
| Previous Filing | New Filing Type | Waiting Period |
| Chapter 7 | Chapter 7 | 8 years |
| Chapter 7 | Chapter 13 | 4 years |
| Chapter 13 | Chapter 7 | 6 years |
| Chapter 13 | Chapter 13 | 2 years |
The waiting periods are measured from filing date to filing date, not discharge to filing.
What About Your Job and Privacy?
Will your employer find out? Maybe. Bankruptcy filings are public record, but they’re not exactly advertised. Your employer won’t be notified unless:
- You have wage garnishments that stop due to bankruptcy
- Your employer is a creditor
- You need time off for court proceedings
Most employers never find out, and legally, they can’t discriminate against you for filing bankruptcy.
Who else can see your filing? Creditors, lenders, landlords, and anyone who knows where to look can find bankruptcy filings in public records. However, it’s not commonly publicized—your local newspaper isn’t going to run your name.
Life After Bankruptcy: What to Expect
Once you receive your discharge, the legal process is over, but your financial recovery is just beginning. Here’s what typically happens:
Immediately After:
- Collection calls stop permanently for discharged debts
- You receive your discharge paperwork
- The weight of unmanageable debt lifts
First Year:
- Focus on budgeting and building an emergency fund
- Consider a secured credit card to start rebuilding credit
- Keep copies of your discharge order in case creditors mistakenly try to collect
Years 2-3:
- Continue demonstrating responsible credit use
- Pay all new bills on time (this is crucial)
- Your credit score gradually improves
Years 4-7:
- You may qualify for better interest rates
- Chapter 13 bankruptcy falls off your credit report
- Your bankruptcy becomes less of a factor in lending decisions
Years 8-10:
- Chapter 7 bankruptcy falls off your credit report
- Your credit history becomes dominated by post-bankruptcy positive behavior
Alternatives to Consider First
Bankruptcy should generally be a last resort. Before filing, consider whether these alternatives might work:
- Debt consolidation: Combining multiple debts into one lower-interest loan
- Debt management plans: Working with a credit counseling agency to negotiate lower payments
- Debt settlement: Negotiating with creditors to settle debts for less than owed
- Increasing income: Taking a side job or freelancing to pay down debt faster
- Strict budgeting: Cutting expenses aggressively to free up money for debt repayment
That said, if you’re facing foreclosure, your wages are being garnished, or you simply can’t keep up with minimum payments despite cutting every possible expense, bankruptcy might be the smartest choice.
Common Bankruptcy Myths Debunked
Myth 1: “Bankruptcy means you’re irresponsible with money.”
Reality: Most bankruptcies result from unexpected medical bills, divorce, job loss, or business failure—not reckless spending.
Myth 2: “You’ll lose everything you own.”
Reality: Exemptions protect most essential assets. Many people keep their homes, cars, and personal belongings.
Myth 3: “Your credit is ruined forever.”
Reality: Yes, bankruptcy affects your credit, but many people recover within a few years with responsible financial habits.
Myth 4: “You can never get credit again.”
Reality: You can often get a secured credit card immediately after discharge and rebuild from there.
Myth 5: “Everyone will know you filed bankruptcy.”
Reality: While it’s public record, most people in your life won’t know unless you tell them.
Red Flags: When NOT to File Bankruptcy
Bankruptcy isn’t always the answer. Avoid filing if:
- You recently transferred assets to friends or family (looks like fraud)
- You racked up debt knowing you’d file bankruptcy (also fraud)
- You just want to avoid paying debts you can actually afford
- Most of your debt is non-dischargeable (student loans, child support, recent taxes)
- You filed bankruptcy recently and haven’t met the waiting period
- You’re about to receive a large sum of money (inheritance, settlement)
Filing bankruptcy fraudulently can result in criminal charges, case dismissal, and denial of discharge.
Your Financial Fresh Start Begins Now
So, how do you declare yourself bankrupt? You start by understanding your options, gathering your financial documents, completing credit counseling, and filing a petition with your local bankruptcy court. Whether you choose Chapter 7 for a quick discharge or Chapter 13 for a structured repayment plan, the process gives you legal protection from creditors and a path toward financial stability.
Bankruptcy isn’t the end of your financial life—it’s often the beginning of a healthier relationship with money. Yes, it comes with consequences. Your credit takes a hit. The process feels invasive and sometimes embarrassing. But for many people drowning in debt, it’s the lifeline they need to finally breathe again.
If you’re seriously considering bankruptcy, don’t wait until you’ve drained every retirement account or missed three months of mortgage payments. Talk to a bankruptcy attorney sooner rather than later. Many offer free consultations where they’ll review your situation and help you decide if filing makes sense.
Remember: taking action to address overwhelming debt isn’t weakness. It’s wisdom.
Ready to take control of your financial future? Whether you’re exploring bankruptcy or other debt solutions, visit Wealthopedia for comprehensive guides, expert advice, and tools to help you make informed financial decisions. Your path to financial freedom starts with the right information.
