Bankruptcy Laws by State (2026): Exemptions & Means Test

Bankruptcy is a federal legal process that helps people who cannot pay their debts get a fresh start, either by erasing most debts or by reorganizing them into a payment plan. Although the Bankruptcy Code is federal, two of the things that matter most to filers vary by state: the exemptions that decide what property you keep, and the median-income figures used in the Chapter 7 means test. This guide explains how bankruptcy works and links our plain-English guide for each state. It is general legal information, not legal advice.

What bankruptcy is and the two main types

Bankruptcy is a federal court process for people and businesses that cannot keep up with their debts. For individuals, the two most common forms are Chapter 7 and Chapter 13. Chapter 7, often called liquidation, can erase most unsecured debts such as credit cards and medical bills in a matter of months, in exchange for the possible sale of non-exempt property, though in most consumer cases filers keep everything because their property is exempt. Chapter 13, often called reorganization, sets up a three-to-five-year plan to repay some or all debt, and it can let a filer catch up on a mortgage and stop a foreclosure. Which chapter fits depends on income, assets, the type of debt, and goals, which is why the choice is usually made with a lawyer.

The automatic stay

One of the most powerful features of bankruptcy is the automatic stay, which takes effect the moment a case is filed. The stay is a federal court order that immediately stops most collection activity: foreclosure sales, wage garnishment, vehicle repossession, lawsuits, and the constant calls and letters from creditors. For many people facing an imminent foreclosure or garnishment, the automatic stay is the main reason to file when they do. The stay is not always permanent or absolute, and creditors can ask the court to lift it in some situations, but it provides immediate breathing room while the case proceeds.

Exemptions: what you keep, and why your state matters

Exemptions are the rules that decide which property you can protect from creditors in bankruptcy, and they are largely a matter of state law, which is why two people with identical finances can have very different outcomes depending on where they live. There is a federal set of exemptions in the Bankruptcy Code, but each state decides whether its residents may use that federal set or must use the state's own exemptions. Most states have opted out, meaning their residents must use the state exemptions, while a minority let filers choose whichever set is better for them. The single most important exemption is usually the homestead exemption, which protects equity in a home and ranges from unlimited in a handful of states to a fixed and sometimes modest dollar amount in others. States also set exemptions for a vehicle, household goods, tools of a trade, and often a wildcard that can be applied to anything, and some amounts adjust for inflation. Each state guide lists the current figures.

The Chapter 7 means test

Since 2005, people who want to file Chapter 7 generally must pass a means test, which is designed to direct higher-income filers toward Chapter 13. The first step compares your household's income to the median income for a household of that size in your state. If your income is at or below the state median, you generally qualify for Chapter 7. If it is above, a more detailed calculation of disposable income applies. The median-income figures are published by the U.S. Trustee Program and are updated periodically, so the number that applies depends on your state, your household size, and the date you file. Each state guide gives the current figures and links the official source.

What bankruptcy can and cannot do

Bankruptcy can erase most unsecured debts, including credit card balances, medical bills, personal loans, and many older debts, and it stops most collection through the automatic stay. It cannot erase everything. Most student loans are dischargeable only by proving undue hardship in a separate proceeding, and recent income taxes, child support, alimony, and most court fines and criminal restitution generally survive a bankruptcy. Secured debts like a mortgage or car loan can be handled in different ways depending on whether you want to keep the property. Before filing, the law requires a brief credit-counseling course from an approved provider, and a second debtor-education course is required before debts are discharged.

How long it takes and the effect on credit

The two chapters move on very different timelines. A typical Chapter 7 case is completed in about three to four months from filing to discharge, while a Chapter 13 case runs the length of its three-to-five-year repayment plan before the remaining balances are discharged. A bankruptcy filing is also reported on your credit, generally a Chapter 7 for up to ten years and a Chapter 13 for up to seven years from the filing date. Many people find their credit begins to recover well before then, once the underlying debts are resolved and they rebuild a positive payment history, because lenders weigh current income and recent behavior heavily. These timing and credit effects are part of the trade-off to weigh with an attorney, alongside the fresh start that discharge provides.

How to evaluate your options

If you are struggling with debt, the practical first steps are to list your debts, income, and the property you want to protect, and then to speak with a licensed bankruptcy attorney in your state, who can explain whether Chapter 7 or Chapter 13 fits, what your state's exemptions let you keep, and whether you pass the means test. Most bankruptcy attorneys offer a free or low-cost initial consultation. Bankruptcy is not the right answer for everyone, and alternatives such as negotiation or debt management sometimes make more sense, but for many people it is a powerful and legitimate tool for a fresh start. Pick your state below to see its specific rules. None of this is legal advice, and reading it does not create an attorney-client relationship.

Bankruptcy by state

The table links our guide for each state and the District of Columbia. Each guide covers that state's exemptions, whether it opted out of the federal exemptions, the homestead and vehicle exemption amounts, and the current means-test median income.