Bankruptcy court doesn't hand out blank slates. Some debts are wiped out, some get put on a schedule, and a few follow the filer out the door no matter which chapter the case is filed under. Unpaid credit card balances are one of the most common reasons people end up there in the first place: Americans were carrying $1.21 trillion in credit card debt as of Q2 2025, according to the Federal Reserve.
Chapter 7 Liquidates, Chapter 13 Reschedules
Both chapters are open to individuals, and both can end in a discharge. What differs is the trade you make to get there.
The Chapter 7 route runs on liquidation: creditors get paid out of the sale of what you own. Chapter 13 leaves your possessions where they are and substitutes money over time, under a plan the court sets at a level you can afford.
| Chapter 7 | Chapter 13 | |
|---|---|---|
| Your property | Sold to pay creditors | Kept |
| How debt is handled | Discharged when the court approves the filing | Repaid under a court-mandated plan, remainder forgiven |
| Typical length | Four to six months | Three to five years |
Chapter 7 is the faster reset. Chapter 13 is the slower route that lets you hold on to what you own. That timing difference runs through everything below, because the same debt can be erased in months under one chapter and paid down for years under the other.
A practical wrinkle: exemption rules decide what a Chapter 7 filer actually keeps, and those rules vary by state. "Liquidation" rarely means everything you own goes on the auction block.
Credit Cards and Personal Loans Are Usually Discharged
Credit card debt is usually unsecured, with no car or house backing it, and unsecured debt is what bankruptcy is best at clearing. It can be discharged under either chapter. Personal loans are unsecured too, so they get the same treatment.
The difference is when the relief arrives. Under Chapter 7, the debt is removed once the court approves your filing, and the wait for that approval isn't uniform from one case to the next. Under Chapter 13, you repay the balance according to the court's plan, and whatever is left is forgiven when the plan is complete.
So a Chapter 13 filer may still pay something toward those balances, potentially far less than the original amount.
Medical Bills Are Treated Like Credit Card Balances
Medical debt is unsecured, so it lands in the same bucket. A KFF poll found that about 44% of U.S. adults say affording their health care expenses is difficult, and unpaid bills tend to snowball: credit scores drop, collection agencies start calling.
In a Chapter 7 case, medical bill debt is removed when the court approves the filing. In a Chapter 13 case, some of it may be removed after the repayment plan is finished.
A Small Claims Judgment Can Disappear in Chapter 7
A small claims judgment happens when a creditor sues over a debt and wins, which means a court has ordered you to pay. Chapter 7 can release you from that obligation, because the filing establishes that you don't have the money or assets to satisfy it. Under Chapter 13, part of the judgment may end up inside your repayment plan instead.
Bankruptcy Pauses a Foreclosure, and Chapter 13 Can Stop One
A mortgage is secured debt, so falling behind puts the house at risk. Filing changes the clock, though the two chapters change it very differently.
Filing Chapter 7 triggers an automatic stay, which forces creditors to stop trying to collect. A foreclosure sale already on the calendar has to wait, assuming the house hasn't been sold out from under you yet. But the reprieve is measured in months: the stay holds while the case is processed, and no longer.
Chapter 13 is aimed at homeowners who want to stay put. You remain in the home and catch up on missed payments through the court's repayment plan. Finish the plan and the foreclosure is stopped. Miss the end date without completing it, and the home can still be lost.
Picture someone with a stack of hospital bills, a maxed-out card, and three missed mortgage payments. A Chapter 13 plan could fold the mortgage arrears into scheduled payments while the unsecured balances get chipped away and eventually forgiven. That outcome depends on completing every payment the court set.
After a Discharge, Collectors Are Barred From Chasing the Debt
Filing also tells creditors, in legal terms, to stop contacting you. According to the Consumer Financial Protection Bureau, a discharge permanently bars the creditor or debt collector from collecting the discharged debt. Once the case has run its course, calls and letters about those specific debts aren't permitted.
Child Support and Alimony Are Never Discharged
Neither goes away in bankruptcy, under either chapter. What can change is capacity to pay: clearing other debts may free up room in a budget to catch up on past-due support or spousal payments.
Student Loans Require a Separate Adversary Proceeding
Student loans aren't discharged automatically when you file. Relief requires an adversary proceeding, a separate request arguing that repaying the loans would cause major hardship for you and your family.
If the request succeeds, the outcome can take one of three forms:
- Improved repayment terms
- A partial discharge of the loan
- A full discharge of the loan
An Auto Loan Lien Outlives the Automatic Stay
Auto loans are secured by the car, which means the vehicle can be repossessed if payments stop. In Chapter 7, the lender can't repossess while the automatic stay is in place. Once the bankruptcy is processed, though, the lender may still have the right to take the car if the debt goes unpaid. An automatic stay applies in Chapter 13 as well, and if the car loan is written into the payment plan, you can keep the vehicle as long as you stay current.
The Mortgage Stays, but Junior Liens Sometimes Don't
The house itself backs the mortgage, and that link doesn't break when a case opens or when it closes. Any other lien recorded against your property works the same way: collateral keeps the obligation alive, so the debt is still yours during the bankruptcy and after it. The narrow exception: in some Chapter 13 circumstances, junior liens (a second mortgage, typically a HELOC or home equity loan) can be discharged. For homeowners hoping to keep the house, a Chapter 13 repayment plan is generally the structure that makes that possible.
Income Tax Debt Has to Meet IRS Criteria First
Filing doesn't wipe out a tax bill on its own. Preliminary criteria set by the IRS have to be met first: the debt must be income taxes, and tax evasion disqualifies it.
Divorce Legal Fees and Restitution Can Be Rolled Into a Chapter 13 Plan
Legal fees from a divorce are treated like other domestic support obligations and typically can't be discharged. Restitution payments aren't discharged either. Chapter 13 offers a middle path in both cases: outstanding divorce legal fees may be eligible to be rolled into the court-ordered payment plan, and restitution may be restructured the same way.
Worth knowing: someone who has committed a crime and served prison time is still eligible to file for bankruptcy.
Debts From Fraud, Embezzlement, and Larceny Are Nondischargeable
Obligations tied to fraud, embezzlement, larceny, or willful and reckless acts survive the case. There's a knock-on effect, too: other debts may be wiped out precisely so the filer can pay the ones that can't be.
A Discharge Covers the Filer, Not a Co-Signer
A discharge applies to the person who filed. When a relative or friend co-signed a loan or credit card, that person generally remains on the hook for the balance, and collectors can keep pursuing them. It's a common source of friction once a case closes.
Secured Debt Tends to Survive, Unsecured Debt Clears
The dividing line runs mostly along secured versus unsecured. Unsecured balances (cards, personal loans, medical bills) are what bankruptcy clears most cleanly. Debts tied to collateral, to family obligations, or to conduct the law won't excuse tend to survive, sometimes in a rescheduled form.
That leaves two very different profiles. Chapter 7 fits someone whose main problem is a pile of unsecured debt and who wants it gone in months rather than years. Chapter 13 fits someone with property to protect, usually a house, who can sustain payments over three to five years and needs the arrears folded into something manageable. In either case, the debts that don't go away set the size of the bill still standing when the court closes the file.
