What Bankruptcy Can and Cannot Do in 2026

Bankruptcy stops most creditor calls, lawsuits, and wage garnishments, and eliminates many types of debt, including credit card balances, medical bills, and personal loans, making it an excellent way to start fresh financially. But you can’t eliminate all debts. Student loans, child support, alimony, and most recent tax debts survive bankruptcy. Bankruptcy also doesn’t automatically remove property liens, which can lead to the lender recovering the collateral, such as a house or car, if you don’t make arrangements to pay the debt.

In This Article

What Filing for Bankruptcy Does for You

Filing for bankruptcy stops most creditors in their tracks, and a discharge permanently wipes out qualifying debts. Here’s what you can expect when you file for Chapter 7 or Chapter 13.

Stop Creditor Harassment Immediately

When you file your bankruptcy case, the automatic stay takes effect immediately and stops most creditor calls, wage garnishments, and lawsuits. But it doesn’t stop everything. Child support, alimony, and criminal actions continue. The stay can also halt many IRS collection actions, but most tax debts remain, and collections can resume later if the debt isn’t paid or otherwise resolved. (11 U.S.C. § 362.)

Eliminate Credit Card Debt and Most Unsecured Debts

Bankruptcy is most powerful against nonpriority unsecured debts, or debts where you didn’t pledge property as collateral. The types of debts you can discharge without returning any property include:

• credit card debt (including charged-off accounts sold to collectors)
• medical bills
• personal loans and payday loans
• overdue utility payments
• gym membership contracts
• past-due rent and broken lease obligations
• phone bills, and
• most judgments (unless based on fraud or intentional injury).

(11 U.S.C. § 727.)

If your credit card agreement made a purchased item collateral, you’ll need to return it or offer to pay the creditor its current value instead. Jewelry, electronics, computers, furniture, and large appliances are often secured by the debts used to purchase them. Check your receipt or credit contract to find out whether an item serves as collateral.

Discharge Secured Debts While Returning Property

Bankruptcy wipes out your personal obligation to pay a secured debt, but it doesn’t remove the lien from the property. Mortgages and car loans are common examples because you agreed that the property would serve as collateral. You can discharge your personal liability on these debts in bankruptcy, but you’ll need to surrender the collateral unless you make arrangements to keep paying for it.

Temporarily Stop Foreclosure, Repossession, or Eviction

The automatic stay pauses pending foreclosures, repossessions, and evictions, but only temporarily, and only if they haven’t already been completed. Once the stay lifts, the creditor’s underlying rights don’t go away.

• Evictions. An eviction proceeding will usually stop when you file for bankruptcy, but the stay is often short-lived. If your landlord already has an eviction judgment, bankruptcy usually won’t help in most states.
• Foreclosure and repossession. The automatic stay will temporarily halt a foreclosure or repossession. But if you file Chapter 7 and can’t bring the loan current, you’ll lose the property once the stay lifts. Chapter 13 offers a better solution because it lets you catch up on past-due payments over three to five years while keeping your property.

Start Rebuilding Your Credit

Your credit score will drop after filing, but many people find their credit improves faster than they expect once the crushing debt is gone. Within 12 to 18 months of your discharge, you might qualify for mainstream credit cards (at higher interest rates initially), and you’ll be able to purchase a home sooner than you might think.

The bankruptcy notation stays on your credit report for 10 years for Chapter 7 and seven years for Chapter 13, but its impact on your actual score lessens significantly over time.

Understanding Your Bankruptcy Chapter Options

The chapter you file will depend on your income, assets, and goals, as Chapters 7, 13, and 11 have different eligibility requirements and offer different solutions. You’ll likely pick Chapter 7 or Chapter 13. Most businesses file for Chapter 11 bankruptcy protection because it allows them to reorganize their debts while remaining open.

Chapter 7 Bankruptcy: Quick Debt Relief

Chapter 7 resolves quickly, typically within four to six months. It doesn’t require debt repayment, and works best for people who can’t afford to repay what they owe. Not everyone qualifies for Chapter 7, so you’ll want to find out who can and can’t file for Chapter 7.

Because Chapter 7 is a “liquidation” bankruptcy, the trustee assigned to your case can sell your nonexempt property. Nonexempt property consists of assets that bankruptcy exemption laws don’t allow you to keep. Typically, nonexempt property includes second cars, valuable collections, and investment properties.

Chapter 7 also won’t help you catch up on missed mortgage or car payments. If you’re behind on secured debt and want to keep the property, you’ll need to get current or consider Chapter 13.

Chapter 13 Bankruptcy: Keep Your Property While Catching Up

If you have a regular income and want to keep your house or car, Chapter 13 is usually the better fit. You’ll repay some of what you owe through a three- to five-year plan while catching up on overdue mortgage and car loan payments. At the end of the plan, any remaining qualifying debts are discharged.

The key advantage is that you can stop a foreclosure and keep your home, or prevent a repossession while paying off arrears over time. Chapter 13 can also let you strip off a wholly unsecured junior mortgage or reduce what you owe on certain car loans.

Chapter 11 Bankruptcy: For Businesses and High-Debt Individuals

Chapter 11 reorganizes debts much like Chapter 13, but it is designed for businesses and for individuals whose debts exceed Chapter 13’s limits. It’s usually more complicated and expensive, although Chapter 11, Subchapter V gives many small businesses a more streamlined and affordable option.

What Only Chapter 13 Can Do

Chapter 13 offers benefits that Chapter 7 does not. If saving your home or keeping nonexempt property matters to you, Chapter 13 is usually the stronger option.

Stop a Foreclosure and Save Your Home

Filing Chapter 13 immediately stops foreclosure and lets you propose a repayment plan to catch up on what you owe. You’ll need to show the court you have enough income to cover both the overdue amounts, spread over three to five years, and your ongoing monthly mortgage payments.

Learn more about your home and mortgage in Chapter 13 bankruptcy.

Keep Property That Isn’t Exempt

In Chapter 13, you keep everything, including nonexempt assets, by paying creditors the value of those assets through your repayment plan. In Chapter 7, the trustee sells nonexempt property to pay creditors. Chapter 13 lets you keep it all, but you pay for the privilege. The more nonexempt property you own, the higher your monthly plan payments will be.

Reduce What You Owe Through “Cramdown”

Chapter 13 lets you reduce certain secured loan balances to the property’s current replacement value in a process called a cramdown. If you owe $10,000 on a car loan but the car is worth only $6,000, you can propose a plan that pays the creditor $6,000 and discharges the remaining $4,000. (11 U.S.C. § 1325(a).)

There are limits. You can’t cram down a car debt if you purchased the vehicle within 910 days before filing, and cramdown doesn’t apply to your primary residential mortgage.

Strip Off Junior Mortgages and HELOCs

If the balance on your first mortgage is greater than your home’s current value, Chapter 13 may let you strip off a wholly unsecured second mortgage or HELOC through lien stripping. This usually works only when the junior lien is completely unsecured, and the lien strip generally becomes permanent after you complete your Chapter 13 plan and receive a discharge.

Protect Cosigners and Codebtors

Chapter 7 doesn’t protect a cosigner from collection on a cosigned debt because your filing protects only you. In Chapter 13, the codebtor stay can protect a cosigner on a consumer debt from collection efforts during the plan period.

What Bankruptcy Can’t Do for You

Bankruptcy has limits in what it can do. It can eliminate your personal obligation to pay certain debts, but it doesn’t remove every lien from property you want to keep, erase every kind of debt, or spare you every practical consequence of filing.

Eliminate Certain Types of Debts

Some debts survive a bankruptcy discharge no matter which chapter you file. The most common ones include:

• Child support and alimony. These obligations survive bankruptcy completely. You’ll continue to owe them in full as if you’d never filed. In Chapter 13, you must pay them in full through your plan. (11 U.S.C. § 523(a)(5).)
• Student loans, except in extreme hardship cases. You can discharge student loan debt only if you prove “undue hardship” in a separate court proceeding. You’ll need to show you can’t afford the payments now and have little prospect of being able to afford them in the future. Courts apply that standard strictly. (11 U.S.C. § 523(a)(8).)
• Most tax debts. Discharging tax debt is possible for older unpaid income taxes that meet specific requirements, but most recent tax debts survive. (11 U.S.C. § 523(a)(1).)
• Other nondischargeable debts. Debts you forget to list in your bankruptcy papers, unless the creditor learned of the case anyway, personal injury or death debts caused by drunk driving, criminal fines and restitution, and debts from fraud or embezzlement also survive. (11 U.S.C. § 523.)

Tip. A debt related to fraud won’t be discharged if a creditor files a lawsuit in your bankruptcy case and convinces the judge the debt should survive. Lying on a credit application or pledging borrowed property as collateral for a loan are common examples. (11 U.S.C. § 523(a)(2).)

Remove Liens From Property You Want to Keep

A discharge wipes out your personal obligation to pay, but it doesn’t remove the lender’s lien from the property. A lien allows the lender to take possession of the collateral, sell it, and apply the proceeds to the balance, and it remains attached to the property until the debt is paid. (11 U.S.C. § 524(a); 11 U.S.C. § 522.)

If you file Chapter 7 and discharge your mortgage debt, you no longer owe the money personally, but the lender’s lien stays on the home. If you stop paying the mortgage, the lender can still foreclose once the automatic stay lifts.

Protect All Your Property

You can shield some property using bankruptcy exemptions—state and federal laws that protect certain assets from creditors—but you won’t necessarily keep everything you own. (11 U.S.C. § 522.)

• In Chapter 7, the trustee sells property you can’t protect with an exemption. Common examples include second vehicles, investment properties, valuable collections, large amounts of cash, and luxury items.
• In Chapter 13, you keep all your property, but your plan payments must equal at least the value of your nonexempt assets. If you can’t afford those payments, you won’t qualify.

Prevent Social and Practical Consequences

Bankruptcy has consequences you’ll want to prepare for before filing:

• Renting an apartment. Many landlords check credit and may reject applicants with a bankruptcy on record. Larger security deposits, a cosigner, or a private landlord who skips the credit check are common workarounds.
• Getting utilities. Utility companies often require deposits from bankruptcy filers, even though they can’t deny service solely because you filed.
• Employment. Jobs involving financial responsibility or security clearances can be affected. Federal law prohibits government employers from discriminating against employees because they filed bankruptcy.

Is Bankruptcy Right for Your Financial Situation?

Bankruptcy makes the most sense when you can’t realistically pay off your debt within five years on your own. Your income, assets, and the type of debt you carry will shape which chapter is the right fit and whether filing makes sense at all. With credit card debt topping $1 trillion nationally and bankruptcy filings rising year over year, you’re far from alone in weighing this decision.

Your Debt Type and Amount

Start by asking how much debt you could actually eliminate in Chapter 7. There’s no minimum to file, but you can only receive a Chapter 7 discharge every eight years, so you want to make sure you’re eliminating enough debt to justify using that opportunity. If you couldn’t pay off the debt within five years on your own, Chapter 7 is likely worth considering. (11 U.S.C. § 727(a)(8).)

Chapter 13 makes more sense if you need to catch up on house or car payments to stop foreclosure or repossession, or if you have nondischargeable debt you want to repay over time without creditor harassment.

Your Income and Expenses

Chapter 7 requires your income to be low enough to pass the means test. Chapter 13 requires enough income to fund your plan payments in addition to your regular monthly expenses. (11 U.S.C. § 707(b)(2).)

Property You Want to Protect

Review your state’s bankruptcy exemptions to see what you can keep, and review the federal exemptions too if your state allows you to choose between the two systems. If Chapter 7 would cost you valuable property, weigh that loss against the debt you’d eliminate. If you want to keep nonexempt assets, calculate whether you can afford to pay their value through a Chapter 13 plan.

Your Financial Goals and Timeline

If you plan to buy a home in the next few years, keep in mind that Chapter 7 stays on your credit report for 10 years, though FHA loans may be available as soon as two years after discharge. Chapter 13 stays on for seven years, and some lenders view a completed Chapter 13 plan more favorably than a Chapter 7 liquidation.

Restrictions Before and After Filing for Bankruptcy

Knowing what not to do before and after you file is just as important as knowing your legal options. Violating the rules, intentionally or not, can result in denial of your discharge, dismissal of your case, or criminal prosecution.

Don’t Hide Assets or Provide False Information

You’ll list everything you own in your bankruptcy paperwork and sign that it is accurate under penalty of perjury. Concealing property or misleading the court is bankruptcy fraud, and the trustee has broad power to examine your financial history. Be thorough because the consequences are serious:

• denial of your discharge
• criminal prosecution (up to 20 years in prison)
• fines up to $250,000, and
• permanent loss of the right to file bankruptcy.

Include all property, recent transfers or gifts, closed bank accounts, cash you’re holding for others, storage units and safe deposit boxes, pending lawsuits in which you might receive money, and expected tax refunds or inheritances.

Don’t Pay Back Favorite Creditors Before Filing

Paying some creditors while ignoring others right before you file can result in those payments being reversed. Payments to family members within one year of filing, or to other creditors within 90 days, are subject to clawback through preference actions. (11 U.S.C. § 547.)

The trustee can sue your family member or friend to recover the money, then distribute it equally among all creditors. That’s why bankruptcy attorneys routinely advise against paying back personal loans before filing. You could end up dragging that person into your case, and the debt would be included in your bankruptcy anyway.

You Can’t Take On New Debt in Chapter 13 Without Court Approval

During a Chapter 13 plan, the court must approve new credit obligations. Permission isn’t needed for ordinary living expenses like groceries and utilities, but anything substantial must be presented to the court. If you take on unauthorized debt, your case could be dismissed, leaving you on the hook for everything you originally owed.

You Can’t Keep Your Existing Credit Cards After Filing

Credit card companies will usually close your accounts once they learn of your filing, including cards with zero balances. Federal law requires you to list every creditor, including zero-balance accounts. Leaving one out can result in that debt surviving your discharge, your case being dismissed, or fraud allegations.

You Can’t File Bankruptcy Again Right Away

Waiting periods between discharges prevent back-to-back filings. The rules are: (11 U.S.C. § 727(a)(8).)

• Chapter 7 after Chapter 7. Eight years from the date you filed the first case.
• Chapter 13 after Chapter 7. Four years from the date you filed the Chapter 7.
• Chapter 7 after Chapter 13. Six years, unless you paid back at least 70% of unsecured debts in the Chapter 13 plan.
• Chapter 13 after Chapter 13. Two years from the date you filed the first Chapter 13.

These waiting periods matter. If you file too soon and later face major new debts, such as unexpected medical bills, you could be stuck waiting years before you can file again.

Getting Help With Your Bankruptcy Decision

If you can’t foresee paying off your debt in a reasonable period, bankruptcy is worth a look. Keep in mind that getting the chapter choice right matters because mistakes in bankruptcy can be costly and hard to undo. Here are some good next steps:

• Dig deeper into the differences between Chapter 7 and Chapter 13.
• Learn what not to do before you file.
• Find out if you can file bankruptcy without a lawyer.
• Explore options if you can’t afford a bankruptcy attorney.

Given the complexity of the law and the risk of losing your discharge or your property, professional guidance is usually worth the investment when this much is at stake.