I'm trying to understand bankruptcy

Most people who consider bankruptcy want to know whether they have to file, and what happens if they do. Start with the basics, then follow the questions that apply to you.

What does bankruptcy actually do?From the debtor's perspective, bankruptcy does two things at its core: it stops collection through the automatic stay, and it permanently ends your legal responsibility for many debts through the discharge, though certain types of debt may survive it. The chapters, the trustee, the court, and the paperwork are all part of the legal process that makes bankruptcy work. But bankruptcy is also a balancing act: the system is designed to give honest debtors meaningful relief and a fresh start while protecting creditors' rights and providing a fair distribution to creditors when unprotected assets or disposable income are available. It happens in federal court, and it's used by hundreds of thousands of households every year, most of whom keep everything they own.
What can't bankruptcy fix?A fair amount, and knowing it up front prevents expensive disappointment. It can't erase support, recent taxes, most student loans, or fines. It can't keep a house or car you can't afford going forward. It can't protect cosigners (except partially in Chapter 13), restore your credit overnight, or undo transfers and payments already made. And it can't fix an income that doesn't cover a reasonable life; it only clears the debt standing between you and one.
What is the difference between Chapter 7 and Chapter 13?Chapter 7 wipes out most unsecured debt in a few months without a repayment plan. Chapter 13 reorganizes your debts into a three-to-five-year plan, which lets you keep property you might otherwise lose and catch up on things like a mortgage.
What are exemptions? Why most people keep everythingExemptions are the lists of property the law puts off-limits to creditors and the bankruptcy trustee: home equity up to an amount, a vehicle, household goods, retirement accounts, and more. They're why the great majority of Chapter 7 cases are 'no-asset' cases where the filer keeps everything they own. Which list applies depends on your state, and that single fact changes more outcomes than almost anything else.
Will I lose my house if I file bankruptcy?Probably not. Most people who file bankruptcy keep their home. The two things that decide it are how much equity you have compared with your state's homestead exemption, and whether you can keep making the mortgage payment.
Can I keep my car if I file bankruptcy?Usually, yes. If you own the car outright, exemptions protect a certain amount of its value. If you are still paying on it, you can keep it by continuing the loan, paying it off at its current value, or restructuring it in Chapter 13.
What is the bankruptcy means test?The means test is the income screen for Chapter 7. If your household income over the last six months is below your state's median for your household size, you pass. If it is above, a second calculation of allowed expenses decides whether you can still file Chapter 7 or should file Chapter 13 instead.