Personal bankruptcy basics for individuals and families.
Consumer bankruptcy gives individuals a federal legal process for dealing with overwhelming debt — including credit card debt, medical bills, deficiency judgments, certain tax debts, and other obligations. The two most common chapters for individuals are Chapter 7 and Chapter 13.
Chapter 7 versus Chapter 13.
Chapter 7 is sometimes called "liquidation" bankruptcy. Eligible filers can discharge most unsecured debts in a few months, though non-exempt assets may be sold by a trustee to pay creditors. Eligibility is determined in part by a "means test" that compares income to state medians.
Chapter 13 is a "reorganization" or "wage earner" bankruptcy. Filers propose a 3-to-5-year plan to repay some or all of their debts from future income, while keeping property they would otherwise lose. Chapter 13 can also catch up missed mortgage payments and stop foreclosure, which Chapter 7 generally cannot.
The automatic stay.
Filing bankruptcy triggers the automatic stay, an immediate federal court order that stops most collection activity — calls, lawsuits, garnishments, repossessions, and foreclosures — while the case is pending. Creditors who violate the stay can face sanctions.
The stay has limits. It does not stop most criminal proceedings, certain family-law actions like child support collection, or some tax actions. In repeat filings, the stay may be limited or unavailable without a court order.
What gets discharged and what survives.
Most unsecured debts — credit cards, medical bills, personal loans, deficiency balances — are typically dischargeable. Some debts are not, including most student loans, recent income taxes, child support and alimony, debts from fraud or willful injury, and debts not properly listed in the case.
Secured debts (mortgages, car loans) are treated differently. A debtor can usually surrender the collateral and discharge the debt, or keep paying and keep the property. Chapter 13 offers additional tools for restructuring secured debt that aren't available in Chapter 7.
How bankruptcy intersects with lawsuits.
Bankruptcy frequently intersects with civil litigation. A lawsuit pending against a debtor is generally stayed when bankruptcy is filed. A money judgment may be dischargeable, though some judgments — for fraud, intentional injury, or DUI-related harm — may survive. Wage garnishments typically stop on filing.
People who have been sued, are facing default judgment, or are dealing with aggressive debt collection sometimes consider bankruptcy as one option among several. Whether it's the right tool depends on the type of debt, income, assets, and goals — and is a decision made with a bankruptcy attorney, not a lawsuit-research site.