What Happens After Filing for Bankruptcy?

Filing for bankruptcy isn’t always a decision made of utter desperation. Sometimes it’s a reasonable way to hit the reset button financially and it offers the immediate benefit of an “automatic stay” that prevents contact by creditors and collection agencies.

Whatever your motivation for filing bankruptcy, it’s critically important you understand what happens after you file. Whether you file for Chapter 7 or Chapter 13, your financial life will be dramatically changed in ways that include damage to your credit report, difficulty getting loans for foundational purchases like a home or car, some lost assets (if you file Chapter 7) and the possibility that bankruptcy’s shadow could follow you when you apply for a job.

“A bankruptcy filing appears on reports—up to 10 years for Chapter 7, about 7 years for Chapter 13,” Casey Yontz of Yontz Law said. “Debtor education is also required. Chapter 7 typically discharges debts within months, while Chapter 13 involves a repayment plan spread over three to five years.”

What Happens When You File for Bankruptcy?

After a bankruptcy filing, a judge and court trustee review the assets of the person who is filing, as well as what they owe. The court decides whether to discharge the debts, which means the person who has filed bankruptcy is no longer legally required to pay them.

But wait, there’s more. Much more.

You’ll have to provide the bankruptcy trustee with copies of pay stubs, tax returns, bank statements and other financial documents. You’ll also be required to complete financial management courses during the process, meet with creditors, pay a filing fee (installment plans could be available) and be up to date with all tax returns.

Filing for Chapter 7 requires a means test to check eligibility for what is commonly called a “liquidation bankruptcy” filing. Your work has only started when you file for Chapter 13. Failure to meet the obligations of a three-to-five year repayment plan, which include paying domestic support and making required tax filings, could lead to dismissal of the case altogether.

It’s one reason individuals turn to bankruptcy lawyers to navigate a filing.

“There are so many nuances,” Yontz said. “Complicated finances or higher-value assets always benefit from an attorney’s expertise, regardless of Chapter type. Never file bankruptcy without an attorney. I’ve seen a lot of people get hurt like this.”

Life After Chapter 7 Bankruptcy

Bankruptcy filings rose 16.2 percent in the year ending September 30, 2024, with Chapter 7 filings once again leading the way. Of the almost 500,000 filings, approximately 300,000 were Chapter 7.

Though Chapter 7 carries that liquidation tag, most people actually get to keep their stuff. Assets that aren’t exempt are liquidated – sold off – to pay the debt but individuals filing Chapter 7 can keep property considered “exempt” such as their house and a car used for work, Social Security checks, pensions,  veteran’s benefits, welfare and retirement savings.

Nonexempt assets are “luxury” items like cash, bank accounts, stock investments, coin or stamp collections, a second car or second home, a snowmobile, boat or ATV, etc. The money raised from the liquidated items is used to pay the trustee, cover administrative fees and repay your creditors as much as possible.

“In a Chapter 7 case, the bankruptcy trustee has the right to liquidate (sell) the asset for the benefit of creditors,” Scott Barna, president of Stretto, said. “More than 90% of Chapter 7 bankruptcies are deemed “no asset” cases wherein there are no assets (or insufficient assets) for liquidation. Analyzing the risk of liquidation of assets is one of the core obligations and most valuable aspects of retaining an experienced bankruptcy attorney.”

Life After Chapter 13 Bankruptcy

Assets aren’t sold off in Chapter 13, also known as “wage earner’s bankruptcy,” but the process still exacts significant sacrifices.

The court, your trustee, you and your creditors work out a three-to-five year payment plan based on your income and assets with the focus being to protect secured debt (mortgages, etc.)

Once you successfully complete – or discharge – the payment plan, the rest of your unsecured debt is forgiven. If you have trouble sticking to the plan, it’s possible to ask the court for modifications, and many people do.

Still, more than half  who file for Chapter 13 bankruptcy don’t make it to the end, most because they can’t make the payments. In this case, they can file for Chapter 7.

“Most bankruptcy professionals will offer a free initial consultation to review the consumer’s circumstances and determine whether seeking bankruptcy protection, and if so under which chapter of bankruptcy, is their best option,” Barna said.

Life After Chapter 11 Bankruptcy

Businesses filing Chapter 11 typically have 120 days to reorganize their finances and propose a repayment plan to creditors, the basic idea being to continue making money to pay off debt.

If creditors vote to approve the plan, it goes to the courts for confirmation and implementation.

Though the business continues to operate during bankruptcy proceedings, most of the business decisions are made with permission from the courts and only upon completion of the process can any debts be discharged.

What to Expect After Filing for Bankruptcy

Filing for bankruptcy is a chance for a new start that includes protection from creditors and collection agencies and perhaps the peace of mind that eluded individuals before filing.

“A discharge can reset financial priorities,” Yontz said. “Over time, new budgeting habits can strengthen your financial health. If you need to lease a home or apartment, most lessees see the discharge as a positive, and you have a better shot at your application being approved. This is mostly because they know you cannot get a discharge for another 8 years.”

Bankruptcy’s tentacles are far-reaching – from the obvious need to repair your credit score (that probably took a hit even before you filed) to the possibility that it can follow you into the workplace and impact future job prospects.

Your Credit Score

If you do a good job of managing your finances following bankruptcy, and, in the case of Chapter 13, stick to the repayment plan until discharge, your credit score eventually will improve.

Chapter 7 bankruptcy remains on your credit report for 10 years, and Chapter 13 is on your credit report for seven years.

One of the biggest boosts to a credit score is paying bills on time, as well as not over-extending use of credit. So, if you stick to a smart financial plan after filing bankruptcy, the damage to your credit score and credit report won’t be forever.

“Once the bankruptcy process is complete, individuals can rebuild their credit score in a matter of only a few years by taking some important steps and actions,” said Barna, who recommends keeping current on all bills, paying off all debt that wasn’t discharged in the bankruptcy and, within six months, taking out a new line of credit and treating it responsibly.

The Bankruptcy Trustee

Trustees are usually bankruptcy lawyers who oversee the liquidation of your non-exempt assets in Chapter 7, mediate the meeting of creditors, and  recommend to the court how creditors will be paid back. With a Chapter 13 bankruptcy, the trustee oversees the payment plan and makes sure it’s being followed.

Trustees collect a fee, usually a percentage of what’s paid to creditors. If you disagree with your trustee, you can go to the judge, who makes the final call.

“The trustee’s responsibility is to determine the veracity of the debtor’s disclosures and seek to preserve, where applicable, all non-exempt assets for the benefits of the creditors,” Barna said. “It is imperative that the debtor fully disclose all assets and liabilities and not have made inappropriate transfers preceding the filing.”

The Automatic Stay

Calls and letters from creditors or collection agencies, as well as lawsuits and wage garnishments, are stopped by the bankruptcy filing known as the automatic stay. The automatic stay will halt foreclosures and evictions, and keep your utilities from being turned off but it won’t exempt you from paying taxes or child support.

You can sue  a creditor who violates an automatic stay. If a creditor asks the judge to lift a stay to repossess a car or foreclose on your house, that creditor must make a compelling case in court.

If you file for bankruptcy twice in the same year, the second time around the automatic stay is only in effect for 30 days.  In that case, you or your trustee can petition the court to keep the stay. You have to show your second bankruptcy was filed in good faith.

Bankruptcy Fees

The cost of  a bankruptcy filing in 2025 is $338 for Chapter 7, $313 for Chapter 13. Other related costs vary by state, but the filing fee is standardized.

While you are expected to pay it immediately, the judge may allow you to pay it in installments over 120 days, after which your bankruptcy proceedings can begin. Failure to pay will dismiss your case.

Meeting of Creditors

Also known as a “341 hearing,” it’s not as daunting as it sounds in one respect. Creditors are invited to attend but often don’t.

The daunting part is actually the preparation involved. You’ll be asked by the trustee to provide in advance your tax returns, pay history (usually check stubs), Social Security card, a photo ID and more. All the documents the trustee asks for are vital to the process, and the faster you provide them, the more smoothly things will go.

The meeting involves the two of you going over the paperwork and figuring out if you’re eligible to file for Chapter 7. If everything is in order, the trustee sends the information to your creditors.

Debtor Education

The bankruptcy court is invested in making sure that filing for bankruptcy doesn’t become a “get out of debt free” card that you make a habit of using.

Before you file, you’re required to take a credit counseling course within the past 180 days. Then, after the meeting of creditors, you have 60 days to take a debtor education class.

The credit counseling course helps determine if you need to file for bankruptcy, or can pay through a repayment plan, like those offered by nonprofit debt management agencies. A counselor goes over your income, debts and living costs and helps you assess the situation.

The debtor education course comes after the filing and focuses on how to make good financial decisions and avoid filing a second bankruptcy. The clock on the 60 days to take the course starts ticking after the creditor meeting ends and, again, the course is required. If you don’t take it, your bankruptcy is dismissed.

“The bankruptcy code is intended to provide rehabilitation and restoration so that an individual can get out from under unrecoverable financial burden and back to financial health,” Barna said. “Based on available data, millions of Americans live paycheck-to-paycheck. Each is a life event (e.g., medical, marital, employment) away from not being able to pay their bills.”

Effects on Property

If you file Chapter 13 and follow the repayment plan, and keep making your house and car payments, you keep your property.

If you file Chapter 7 and still have secured debt – debt tied to property like a house or car – you have to fill out a statement of intention as part of the filing. The form lets the court know what you plan to do with your secured debt. If you can’t afford the payments, you can surrender the property to repay debt. This means you no longer owe any money on it, but you also lose the property.

You can also “reaffirm” the debt, which means you’ll work with the creditor on how to pay it off, and you will keep it. With a car, you can also pay it off with a “motion to redeem,” which means you pay what you owe on it or the current market value, whichever is lower, and keep the car.

Current & Future Employment

Since bankruptcy filings are public information, a potential employer or your current one may find out you’ve filed.

All court records, including bankruptcies, are available for a small fee through the Public Access to Court Electronic Records (PACER). This system is used mostly by people who want to have access to court records – lawyers, journalists and, yes, creditors.

The most likely place an employer will see your bankruptcy is on your credit report.

Employers are increasingly screening potential employees, according to HR.com. The Professional Background Screeners and HR.com’s survey of human resources professionals in 2021 found that credit or financial checks are included in 51% of employer background screenings for companies with U.S. locations.

Businesses check credit reports, they said, to protect the business and customers from embezzlement or theft, and it’s also a way to verify background details. The good news is, your employer, or potential employer, can’t look at your credit report without your written consent.

Speak with a Credit Counselor

If you’re considering the extreme step of filing bankruptcy, you should first speak to a credit counselor. Credit counseling,  available free through nonprofit accredited debt management agencies, can be a good way for a nonjudgmental person who understands the ins and outs of personal finances, to help you fully assess your situation. Credit counseling can also help if you need financial advice after bankruptcy.

Nonprofit accredited debt management agencies can be found through the NFCC. The counselor may recommend a debt management plan, in which they negotiate lower interest rates with creditors, usually credit card companies. You would pay one monthly payment to the debt management agency over three to five years, and the agency pays your creditors.

Unlike bankruptcy, this doesn’t appear on your credit report, and is a less catastrophic way to pay down debt without filing bankruptcy.