# How does bankruptcy work? Chapter 7 vs Chapter 13

> Chapter 7 wipes out many debts in a few months. Chapter 13 repays them over 3 to 5 years.

Source: https://www.walletprep.com/learn/bankruptcy-basics/ · Updated 2026-10-04 · Debt

Bankruptcy is a federal court process that wipes out many debts (Chapter 7) or lets you repay them through a 3 to 5 year plan (Chapter 13). It stops most collection the day you file, but it does not erase most student loans, child support or recent taxes, and it can stay on your credit report for up to 10 years.

## Key facts
- **Filing stops most collection.** The moment you file, an automatic stay stops most lawsuits, wage garnishments, collection calls and foreclosures. Creditors can ask the court to lift it in some cases.
- **Chapter 7 has an income test.** If your income is above your state's median for your household size, you must pass a means test that compares your income with allowed expenses. If you fail it, Chapter 13 may still be open to you.
- **Court fees are a few hundred dollars.** As of 2026, court fees are $335 for Chapter 7 and $310 for Chapter 13, and you can pay in up to 4 installments. Lawyer fees are extra and vary by area.
- **It stays on your report for years.** A bankruptcy can stay on your credit report for up to 10 years. Many people start rebuilding credit right after a discharge, with a secured card and on-time payments.

## How Chapter 7 works
In Chapter 7, the court appoints a trustee who reviews your finances. About 21 to 40 days after you file, you attend a short meeting of creditors where the trustee asks you questions under oath. Creditors rarely show up.
The trustee can sell property that your state's exemptions don't protect and pay creditors from it. Many filers have nothing beyond what is exempt, so nothing is sold. If no one objects, the court usually grants a discharge 60 to 90 days after that meeting.

## How Chapter 13 works
In Chapter 13, you propose a plan to repay part or all of your debts from your income. If your income is below your state's median, the plan usually runs 3 years. If it is above, it usually runs 5. You pay the trustee each month, and the trustee pays creditors.
Chapter 13 fits people who are behind on a mortgage or car loan and want to keep it, who have property that Chapter 7 wouldn't protect, or whose income is too high for Chapter 7. When you finish the plan, the court discharges most remaining debts covered by it.

## Which debts bankruptcy can erase
Credit cards, medical bills, personal loans and most other unsecured debts can usually be discharged. Secured debts, like a car loan, work differently. If you want to keep the car, you generally keep paying the loan.
Some debts usually survive. These include child support and alimony, most taxes, criminal fines and restitution, debts from injuring someone while driving intoxicated and most student loans. Student loans can be discharged only in rare cases where you prove undue hardship in a separate court process.

## The steps to file
First, take a credit counseling session from an approved agency within 180 days before you file. Then file a petition and schedules that list your debts, income, expenses and property with the bankruptcy court. Pay the filing fee or ask for installments or a waiver.
Attend the meeting of creditors. Before your discharge, finish a second course on personal money management from an approved provider. Skip it and the court can close your case without a discharge.

## Filing with or without a lawyer
You can file on your own, but mistakes can cost you property or your discharge. Exemptions depend on state law, and the means test has detailed rules. Many people find a lawyer is worth the cost, especially for Chapter 13.
Be wary of anyone who offers to fill out bankruptcy papers but isn't a lawyer. They can type forms but can't give legal advice. Legal aid offices and law school clinics may help for free if your income is low.

## Life after bankruptcy
After a discharge, creditors can't try to collect the erased debts. Check your credit reports a couple of months later and dispute any discharged debt still shown as owed.
Rebuilding takes time but starts right away. A secured credit card, small balances and on-time payments every month all add positive history while the bankruptcy ages.

## A worked example: what Chapter 7 could wipe out
Priya lost her job, fell behind on everything and is being sued over a card. Her income is now below her state's median. She has $53,000 of debt, including a $15,000 federal student loan.

- Credit cards: $22,000
- Medical bills: $9,000
- Personal loan: $7,000
- Debt a discharge could erase: = $38,000
- Student loan that stays: $15,000
- Chapter 7 court fees: $335
- Lawyer (assumed): $1,500
- Cost to file: = $1,835

1. Her unsecured debts are $22,000 + $9,000 + $7,000 = $38,000. A Chapter 7 discharge could erase all of it.
2. The $15,000 federal student loan is not discharged. She can apply for an income-driven repayment plan instead.
3. Court fees of $335 plus an assumed $1,500 lawyer fee (prices vary) come to $1,835, far less than one year of minimum payments.

## Common mistakes
- **Paying debts you could discharge.** Draining savings or a retirement account to pay cards, then filing anyway, wastes money that bankruptcy would have let you keep. Talk to a lawyer before you make big payments.
- **Paying favorites right before filing.** The trustee can take back payments made to creditors in the 90 days before filing, and the window is longer for payments to relatives. Tell your lawyer about any of these.
- **Skipping the second course.** The money management course after filing is required. Without it, the court can close the case without a discharge, and the debts remain.

## Questions people ask
### How long after bankruptcy can I get a credit card or car loan?
Often within months, though at higher rates at first. A secured credit card is the usual first step. On-time payments and low balances help your score recover as the bankruptcy ages.

### Will I lose my house or car in bankruptcy?
Not necessarily. Each state protects some equity in a home and a car, and you generally keep property with a loan if you keep paying. Chapter 13 can also help you catch up on missed mortgage payments.

### Can I file bankruptcy on just one debt?
No. You must list all your debts. You can still choose to keep paying some, like a car loan you want to keep.

### Does my spouse have to file with me?
No. You can file alone. Joint debts still affect your spouse, since creditors can collect from them, and in some states community property rules change how this works.

## Do this today
Write down every debt with its balance and who it is owed to, your monthly income and what you own. Then find two bankruptcy lawyers or a legal aid office near you that offer a free consultation and book one.

## Sources
- [U.S. Courts: Bankruptcy basics](https://www.uscourts.gov/court-programs/bankruptcy/bankruptcy-basics)
- [U.S. Courts: Chapter 7 bankruptcy basics](https://www.uscourts.gov/court-programs/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics)
- [U.S. Courts: Chapter 13 bankruptcy basics](https://www.uscourts.gov/court-programs/bankruptcy/bankruptcy-basics/chapter-13-bankruptcy-basics)
- [U.S. Trustee Program: Credit counseling and debtor education](https://www.justice.gov/ust/credit-counseling-debtor-education-information)
- [U.S. Trustee Program: Means testing](https://www.justice.gov/ust/means-testing)
- [CFPB: How long does information stay on my credit report?](https://www.consumerfinance.gov/ask-cfpb/how-long-does-information-stay-on-my-credit-report-en-323/)

_General education, not personalized financial, tax or legal advice. Figures are examples. Check current rates and limits before you act._