Bankruptcy filings in the United States increased 14.2% in 2024, with 517,308 total cases filed according to U.S. Bankruptcy Court statistics. As of early 2026, filings continue to rise, driven by high consumer debt levels, elevated interest rates, and persistent inflation. Bankruptcy provides a powerful legal tool for regaining financial control — but choosing the right chapter is critical.
What Bankruptcy Can and Cannot Do
Bankruptcy CAN:
- Eliminate (discharge) most unsecured debts like credit cards, medical bills, and personal loans
- Stop foreclosure temporarily and allow time to catch up on mortgage payments
- Halt wage garnishments, bank levies, and creditor lawsuits through the automatic stay
- Discharge tax debts in some circumstances
- Give you a fresh financial start
Bankruptcy CANNOT eliminate:
- Child support and alimony
- Most student loans (except in cases of undue hardship)
- Recent income tax debts (generally less than 3 years old)
- Criminal fines and restitution
- Debts incurred through fraud
- Debts from DUI-related injuries
The Automatic Stay: Immediate Protection
From the moment you file for bankruptcy, an automatic stay immediately halts virtually all collection actions:
- Creditor phone calls and letters must stop
- Wage garnishments cease
- Foreclosure and repossession proceedings are paused
- Utility shutoffs are temporarily suspended
- Lawsuits are frozen
Violation of the automatic stay by a creditor can result in sanctions and damages.
Chapter 7: Liquidation Bankruptcy
Chapter 7 is the most common form of personal bankruptcy. In FY 2024, individual Chapter 7 filings increased 15% year-over-year.
Who qualifies: Individuals who pass the Means Test — demonstrating that their income is below the state median or that their disposable income is insufficient to repay debts.
How it works: A court-appointed trustee reviews your assets, sells any non-exempt property, and distributes proceeds to creditors. Most Chapter 7 filers have no non-exempt assets, making this a "no-asset" case.
Discharge timeline: Debts are typically discharged 3 to 6 months after filing.
Credit impact: Remains on your credit report for 10 years.
Exemptions protect: Your primary home (up to a state-specific homestead exemption), retirement accounts, vehicle (up to an exemption), basic household goods, and tools of your trade.
Chapter 13: Reorganization Bankruptcy
Chapter 13 allows you to keep your assets and repay debts through a 3 to 5 year repayment plan supervised by the court.
Who qualifies: Individuals with regular income and total secured debts below $1,395,875 and unsecured debts below $465,275 (2024 limits, adjusted periodically).
How it works: You propose a repayment plan to the court. Secured debts (like your mortgage) are brought current. Unsecured debts may be paid only a fraction of their total balance.
Key advantage over Chapter 7: You can save your home from foreclosure by catching up on arrears through the plan.
Credit impact: Remains on your credit report for 7 years.
| Feature | Chapter 7 | Chapter 13 |
|---|---|---|
| Duration | 3–6 months | 3–5 years |
| Asset protection | Limited | Higher |
| Home foreclosure | Cannot cure | Can cure arrears |
| Income requirement | Below median | Regular income |
| Debt limits | None | Yes |
| Credit impact | 10 years | 7 years |
How to File
- Complete mandatory credit counseling from an approved agency within 180 days before filing
- File a petition, schedules of assets and liabilities, income/expense statements, and a Statement of Financial Affairs
- Pay the filing fee ($338 for Chapter 7; $313 for Chapter 13)
- Attend the 341 Meeting of Creditors (usually 30–45 days after filing)
- Complete a debtor education course before receiving a discharge
While you can file bankruptcy without an attorney (pro se), the complexity of the process makes professional representation strongly advisable. Find a verified bankruptcy attorney.
Frequently Asked Questions
Q: Will I lose my house if I file for bankruptcy? A: In Chapter 7, your home is protected up to your state's homestead exemption. If you have significant equity above the exemption, the trustee may sell the home. In Chapter 13, you can keep your home as long as you maintain plan payments and mortgage payments going forward.
Q: Can I keep my car in bankruptcy? A: Yes, in most cases. In Chapter 7, you can reaffirm the car loan and keep making payments. In Chapter 13, you may be able to reduce the interest rate and even the principal balance on your car loan through a process called cramdown.
Q: How does bankruptcy affect my credit score? A: Filing bankruptcy will significantly lower your credit score initially. However, many filers see improvement within 2 to 3 years as they rebuild credit. Many people have credit scores of 650 or higher within 3 to 4 years of discharge.
Q: Can I file bankruptcy more than once? A: Yes, but there are waiting periods. After a Chapter 7 discharge, you must wait 8 years before filing Chapter 7 again, or 4 years before filing Chapter 13. After a Chapter 13 discharge, you must wait 2 years for another Chapter 13, or 6 years for Chapter 7.
Q: What debts can be discharged in bankruptcy? A: Most unsecured consumer debts including credit cards, medical bills, personal loans, utility arrears, and some tax debts. Student loans, alimony, child support, and debts from fraud or criminal conduct generally cannot be discharged.
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