Declaring Bankruptcy

What does declaring bankruptcy actually mean?

Declaring bankruptcy means filing a petition with the bankruptcy court. Court materials describe it plainly: a bankruptcy case normally begins with the debtor filing a petition with the bankruptcy court (Bankr. D. Md. official page — Legal Overview). The "debtor" is simply the person or entity that filed (Bankr. D. Minn. official page — Who is the "Debtor"?).

Nothing you say to a creditor, and no amount of debt on its own, declares bankruptcy. There is no announcement, no registration, and no threshold you cross automatically. Until a petition is filed with the court, no case exists.

Bankruptcy is a set of federal laws and rules found in Title 11 of the United States Code, and federal courts have exclusive jurisdiction — a bankruptcy case cannot be filed in a state court (COB official page — Understanding Bankruptcy). Each of the 94 federal judicial districts handles bankruptcy matters, and in almost all districts those cases are filed in the bankruptcy court.

Is there a difference between declaring and filing bankruptcy?

In practice, no. "Declaring bankruptcy" is everyday speech; "filing" is the word the court, the forms and the statutes use. Official court materials consistently describe the act as filing a petition, and the Bankruptcy Code speaks of commencing a case rather than declaring anything.

The distinction worth keeping is between filing and finishing. Filing opens the case. What people usually mean when they picture the end result — the discharge — is a separate event that comes later, if it comes at all. A discharge releases a debtor from personal liability for certain dischargeable debts incurred before the filing, and prevents those creditors from acting to collect them (U.S. Bankr. Ct. M.D. Ala., Consumer Pro Se Debtors Guide).

Some debts are not dischargeable, and others are not dischargeable under certain circumstances. So "I declared bankruptcy" describes a beginning, not an outcome.

How does it work in practice?

A petition may be filed by an individual, by spouses together, or by a corporation or other entity (Bankr. D. Md. official page — Legal Overview). A joint case is commenced by a married couple filing a single petition, and one spouse cannot take the other into bankruptcy without that spouse's knowledge or consent (11 U.S.C. § 302).

The petition is the document that commences the case. The debtor must also file lists, schedules and statements identifying assets, liabilities, income, expenditures and every creditor with an address (11 U.S.C. § 521). Those documents are filed with the petition or within the period Fed. R. Bankr. P. 1007 allows; many districts set their own timing by local rule.

Filing carries costs set by published schedules. Individual debtors must also complete a credit counseling briefing before filing, with limited exceptions (11 U.S.C. § 109).

What do people get wrong about it?

Three misunderstandings come up constantly.

First, that declaring bankruptcy wipes out everything you owe. It does not. Liens survive: a creditor may still have the right to foreclose a mortgage or repossess a car, and a valid lien not eliminated in the case can be enforced against the property afterwards (U.S. Bankr. Ct. M.D. Ala., Consumer Pro Se Debtors Guide).

Second, that property you claim as exempt is simply removed from the picture. An exemption is claimed on a schedule and protects an interest in property; it does not by itself cancel a mortgage or car loan secured by that property.

Third, that the choice is between one thing called bankruptcy. Individuals who meet the qualifications may file under different chapters, and Chapter 7 and Chapter 13 work very differently — one contemplates liquidating non-exempt property, the other a repayment plan. Which chapter fits is a decision to work through with a lawyer.

Frequently asked questions

Does declaring bankruptcy stop wage garnishment?

Filing generally triggers an automatic stay, which commonly halts collection actions against the debtor and the debtor's property. While the stay remains in effect, creditors generally cannot bring or continue lawsuits, make wage garnishments, or even make telephone calls demanding payment (COB official page — Understanding Bankruptcy). The stay has exceptions and can be lifted by the court on request.

Can I declare bankruptcy without a lawyer?

The law allows an individual to represent themselves in bankruptcy court. Court packets caution that many people find it extremely difficult to do successfully, that the rules are technical, and that a mistake or inaction may affect your rights (Bankr. E.D. La. official guidance — Chapter 13 Form Packet). A court will expect a self-represented filer to follow the same rules as a represented one.

Do I have to list every debt?

The debtor must file a list of creditors and schedules of assets and liabilities (11 U.S.C. § 521). Court packets warn that even a debt you plan to pay outside the bankruptcy must be listed, and that an unlisted debt may not be discharged (Bankr. E.D. La. official guidance — Chapter 13 Form Packet). The same applies to property you do not list or properly claim as exempt.

Does declaring bankruptcy vary by state?

The Bankruptcy Code is federal and applies nationwide, so the basic act of filing does not change from state to state. What varies is which exemptions apply, local court rules on timing and format, and which court you file in. See your state hub for those details.

Sources

• 11 U.S.C. § 302 — Joint cases · official source
• 11 U.S.C. § 521 — Debtor's duties · official source
• 11 U.S.C. § 109 — Who may be a debtor · official source
• Fed. R. Bankr. P. 1007 — Lists, Schedules, Statements, and Other Documents; Time to File · official source
• Bankr. D. Md. official page — Legal Overview
• COB official page — Understanding Bankruptcy
• Bankr. D. Minn. official page — Who is the “Debtor”? [https://www.mnb.uscourts.gov/content/who-%E2%80%9Cdebtor%E2%80%9D]
• U.S. Bankr. Ct. M.D. Ala., Consumer Pro Se Debtors Guide
• Bankr. E.D. La. official guidance — Chapter 13 Form Packet
• 28 U.S.C. § 1930(a)(1)(A), (f)(1) · official source
• 28 U.S.C. § 1930(a)(1)(B) · official source
• Bankruptcy Court Miscellaneous Fee Schedule, Item 8
• Bankruptcy Court Miscellaneous Fee Schedule, Item 9

Related

• Bankruptcy glossary
• Automatic Stay
• Bankruptcy Estate
• Find your local bankruptcy court
• Build your personalised roadmap