Brown sausage in a large skillet over medium-high, crumbling it; remove and set aside.
Sauté peppers and onion in same skillet about 5 minutes until softened.
Grease a 9x13-inch dish; spread bread evenly in bottom.
Layer sausage, vegetables, and both cheeses over bread.
Whisk eggs, milk, Italian seasoning, garlic powder, salt, and pepper flakes in a large bowl.
Pour evenly over casserole; press bread to absorb liquid.
Cover with foil; refrigerate overnight or at least 8 hours.
Preheat oven to 350°F. Bake covered 40 minutes; uncover and bake another 10 minutes until golden brown and cooked through.