What You Need to Know Before Filing Bankruptcy

Written by James Frego, bankruptcy attorney at Frego & Associates. Reviewed and updated July 15, 2026.

More people are filing than at any point in the last decade, and most of them wait far too long to ask what the process actually involves. Bankruptcy is not a single form you sign. It is a federal court case with a required class, an income test, a deadline-driven document list, and a set of Michigan property rules that decide what you walk away with. This guide covers what you need to have in hand, and what you need to stop doing, before you file.

What does filing bankruptcy actually do?

Filing bankruptcy opens a federal court case that stops collection against you immediately and then either wipes out qualifying debt or restructures it into a court-supervised payment plan. The moment your petition is docketed, the automatic stay under 11 U.S.C. § 362 takes effect. Wage garnishments stop. Foreclosure sales stop. The phone calls stop, and a creditor who keeps calling anyway is violating a federal court order, on top of whatever it may already owe you for creditor harassment under Michigan law.

That relief is the reason filings are rising. In the twelve months ending March 31, 2026, total bankruptcy filings rose 11.9% to 591,850, up from 529,080 the year before (Administrative Office of the U.S. Courts, “Bankruptcies Increase 11.9 Percent,” April 2026). Non-business filings, meaning individuals and families, accounted for 565,890 of those cases. This isn’t a corporate story. It’s a household one.

How do you know it’s time to file?

There’s no threshold number. In our experience, the honest test is a math question: if you added up every dollar you could realistically put toward unsecured debt each month, could you clear the balances in five years? If the answer is no, and it usually is once interest is doing the talking, then you’re not paying down debt. You’re renting it.

That said, filing isn’t always the first move. If the balances are within reach, it’s worth reading up on the alternatives to bankruptcy before you commit to a court case.

A few situations move the timeline from “someday” to “now”:

• A garnishment has started or is threatened. Federal law caps wage garnishment at 25% of your disposable earnings, and Michigan follows that ceiling (15 U.S.C. § 1673). Filing stops it, but money already garnished is much harder to claw back.
• A foreclosure sale date is on the calendar. Chapter 13 can stop the sale and spread the arrears over up to five years, but only if you file before the sale happens. Our foreclosure defense team deals with this deadline every week.
• You’re borrowing to pay minimums. Using one card to service another has an ending, and it isn’t a good one.
• You’re pulling from retirement to pay creditors. This is the most painful one to watch. Retirement accounts are generally protected in bankruptcy. Once you cash them out, that protection evaporates and you’ve handed a creditor money the court would have let you keep.

That last point deserves its own warning, so here it is.

Which chapter fits your situation?

Most individuals file under Chapter 7 or Chapter 13, and the two work in fundamentally different ways. Chapter 7 sells what isn’t exempt and discharges the rest in roughly four months. Chapter 13 keeps everything and pays creditors from your income over three to five years. Chapter 11 exists mainly for businesses and for individuals whose debts are too large for Chapter 13’s caps.

Those totals are worth unpacking, because you’ll see smaller numbers quoted elsewhere. 28 U.S.C. § 1930 sets the statutory filing fee at $245 for Chapter 7 and $235 for Chapter 13. On top of that sits a $78 administrative fee and, in Chapter 7 only, a $15 trustee surcharge, both set by the Judicial Conference in the Bankruptcy Court Miscellaneous Fee Schedule. Add them up and you get the $338 and $313 you actually pay at the clerk’s window. The amounts are identical in all 94 federal bankruptcy districts.

They are not the whole cost. Attorney fees are separate, and in Chapter 13 most of the attorney fee is typically paid through the plan rather than up front.

What if I can’t afford the filing fee?

Chapter 7 filers earning under 150% of the federal poverty guideline can apply for a full fee waiver on Official Form 103B. Everyone else can ask to pay the fee in up to four installments. Being broke is not a reason you can’t file. It’s the reason you’re filing.

What must you do before you’re allowed to file?

Four things, and none of them are optional. Skipping any one of them gets a case dismissed, and a dismissal is not a neutral event: it can cost you the automatic stay on your next attempt.

1. Complete credit counseling

Under 11 U.S.C. § 109(h), you must complete a briefing from a credit counseling agency approved by the U.S. Trustee within the 180 days before you file. It usually runs 60 to 90 minutes, costs somewhere in the $15 to $50 range, and can be done online or by phone. You get a certificate. That certificate goes in the case file. Take the course from an agency on the approved list, because a course from an unapproved provider is worth exactly nothing.

2. Pass the means test (or don’t, and file Chapter 13)

The means test compares your household income over the six full months before filing against the Michigan median for your family size. Come in under the median and you qualify for Chapter 7. Come in over it and you go to a second calculation that subtracts allowed expenses to see whether you have disposable income left. The median figures are published by the U.S. Trustee and change twice a year, in April and November, so always work from the current table and not last year’s.

Worth knowing: the six-month lookback is a hard window, not an average of your life. If you got a bonus in March, filing in September may produce a very different result than filing in July. Timing is a strategy, and it’s one of the more common reasons to talk to a lawyer before you file rather than after.

3. Gather your documents

The paperwork is the part people underestimate. Start pulling now:

• Pay stubs for the last six months (all household earners)
• Federal and state tax returns for the last two years
• Bank statements, typically the last six months, for every account
• A recent credit report, so no creditor gets left off the schedules
• Vehicle titles and current payoff statements
• Mortgage statement and, ideally, a rough sense of your home’s value
• Retirement and investment account statements
• Any collection letters, judgments, or garnishment notices

Every creditor has to be listed. A debt you forget to schedule may not get discharged. That’s not a technicality the court waves off.

4. Understand your exemptions before you choose a chapter

This is where cases are won and lost, and it gets its own section.

Michigan exemptions: state or federal?

Michigan is one of the states that lets you choose. If you’ve lived here at least two years before filing, you can elect either the Michigan exemptions under MCL 600.5451 or the federal set under 11 U.S.C. § 522(d). You pick one system. You cannot mix and match.

The trade-off is usually about your house. Michigan’s homestead exemption protects substantially more home equity than the federal one, which makes it the obvious choice for a homeowner with real equity. But the federal system includes a wildcard exemption that Michigan doesn’t have, and it lets you roll unused homestead into that wildcard. If you rent, or if your mortgage is close to your home’s value, that wildcard can protect a bank account or a second vehicle that Michigan’s list would leave exposed.

Which is right for you depends on numbers we’d need to see. That is the honest answer, and any article that tells you otherwise is guessing about your balance sheet.

The Chapter 7 timeline, start to finish

Faster than most people expect. A straightforward Chapter 7 runs roughly three to four months from filing to discharge. The automatic stay is instant. The trustee holds the meeting of creditors between 21 and 40 days after the petition is filed, and the discharge order generally follows 60 to 90 days after the date first set for that meeting (U.S. Courts, “Chapter 7 — Bankruptcy Basics”).

Between filing and discharge you also have to complete a second course, the financial management course under 11 U.S.C. § 727(a)(11). It’s different from the pre-filing counseling. People forget it, the deadline passes, and the case closes without a discharge. Don’t be that person.

What debts survive bankruptcy?

Bankruptcy is powerful but it isn’t universal. 11 U.S.C. § 523 lists debts that generally cannot be discharged, and knowing which ones apply to you changes whether filing is even worth it.

Note the word “usually.” Older income taxes can be discharged if they meet a set of timing rules, and student loan discharge, while difficult, is no longer the dead end it was a few years ago. Both are worth a conversation rather than an assumption.

Five mistakes that damage a case before it starts

Nearly every serious problem we see began in the 90 days before the client walked in the door. The bankruptcy code looks backward, and the trustee’s job is to look with it.

• Paying back a relative. Repaying an insider within one year of filing is a “preference” the trustee can undo (11 U.S.C. § 547(b)(4)(B)), which means your mother gets sued to return the money. For ordinary creditors the window is 90 days. Pay the credit card if you must pay something. Don’t pay family.
• Running up cards before filing. Luxury purchases and cash advances shortly before filing can be presumed fraudulent and carved out of your discharge.
• Transferring property “for safekeeping.” Signing the car over to your brother doesn’t protect it. It creates a fraudulent transfer claim and it puts your discharge at risk.
• Leaving assets off the schedules. Not the tax refund, not the lawsuit you might win, not the timeshare. Disclose everything. Concealment is the one thing that turns a routine case into a criminal referral.
• Waiting until the sheriff’s sale. Chapter 13 can rescue a home from foreclosure, but the case has to be filed before the sale, and the plan has to be ready.

What happens to your credit?

The Fair Credit Reporting Act allows a bankruptcy to be reported for up to 10 years from the date of the order for relief, and it draws no distinction between chapters (15 U.S.C. § 1681c(a)(1)). You will often read that Chapter 13 only reports for seven years. That is true in practice, because the major credit bureaus have chosen to remove completed Chapter 13 cases after seven years, but it’s a voluntary industry policy and not a right the statute gives you. Don’t pick a chapter based on it.

Here’s what the 10-year figure hides, though: most people filing bankruptcy already have a damaged score, and the damage is ongoing. What actually moves a score is the debt-to-income ratio, and discharge fixes that overnight. In our experience, clients are routinely approved for a car loan within a year and a mortgage within two to three. The report entry is a scar, not a sentence.

Frequently Asked Questions

Sources

1. Administrative Office of the U.S. Courts, “Bankruptcies Increase 11.9 Percent” (April 23, 2026). Retrieved July 15, 2026.
2. Administrative Office of the U.S. Courts, “Bankruptcy Filings Statistics”. Retrieved July 15, 2026.
3. 28 U.S.C. § 1930, “Bankruptcy fees”, Cornell Legal Information Institute. Retrieved July 15, 2026.
4. Administrative Office of the U.S. Courts, “Bankruptcy Court Miscellaneous Fee Schedule”. Retrieved July 15, 2026.
5. Administrative Office of the U.S. Courts, “Chapter 7 — Bankruptcy Basics”. Retrieved July 15, 2026.
6. 11 U.S.C. § 547, “Preferences”, Cornell Legal Information Institute. Retrieved July 15, 2026.
7. 15 U.S.C. § 1673, “Restriction on garnishment”, Cornell Legal Information Institute. Retrieved July 15, 2026.
8. Internal Revenue Service, “Topic No. 558, Additional Tax on Early Distributions”. Retrieved July 15, 2026.
9. 11 U.S.C. § 109(h), “Who may be a debtor”, Cornell Legal Information Institute. Retrieved July 15, 2026.
10. 11 U.S.C. § 362, “Automatic stay”, Cornell Legal Information Institute. Retrieved July 15, 2026.
11. 11 U.S.C. § 522(d), “Exemptions”, Cornell Legal Information Institute. Retrieved July 15, 2026.
12. 11 U.S.C. § 523, “Exceptions to discharge”, Cornell Legal Information Institute. Retrieved July 15, 2026.
13. 11 U.S.C. § 727, “Discharge”, Cornell Legal Information Institute. Retrieved July 15, 2026.
14. MCL 600.5451, “Exemptions from property of estate”, Michigan Legislature. Retrieved July 15, 2026.
15. U.S. Trustee Program, “Means Testing” median income tables, U.S. Department of Justice. Retrieved July 15, 2026.
16. U.S. Trustee Program, “Credit Counseling Agencies Approved Pursuant to 11 U.S.C. § 111”, U.S. Department of Justice. Retrieved July 15, 2026.
17. 15 U.S.C. § 1681c, “Requirements relating to information contained in consumer reports”, Cornell Legal Information Institute. Retrieved July 15, 2026.