Primer · Bankruptcy
Bankruptcy: The Federal Reset, Demystified
Chapter 7 discharges most unsecured debt in 90–120 days. Chapter 13 restructures it over 3–5 years. Both stay on your credit report for up to a decade. Here is how to tell which one applies to you.
Bankruptcy is a federal court process, not a financial product. It is the only tool on this site that can legally erase a debt without the creditor's consent.
Chapter 7 — liquidation
Most unsecured debt (credit cards, medical, personal loans) is discharged. Secured debt (mortgage, auto) can be reaffirmed or surrendered. Non-exempt assets may be liquidated by a trustee, though most filers ("no-asset" cases) lose nothing.
Eligibility turns on the *means test*: a six-month income lookback against your state's median household income. If your income exceeds the median, additional calculations apply.
Chapter 13 — reorganization
A court-supervised 3–5 year repayment plan funded by your disposable income. Used to cure mortgage arrears, strip wholly-unsecured junior liens, and protect non-exempt assets that Chapter 7 would liquidate.
What it costs
- Filing fee: $338 (Ch. 7) / $313 (Ch. 13).
- Attorney fees: $1,200–$2,500 (Ch. 7), $3,500–$6,000 (Ch. 13), often paid through the plan.
- Credit reporting: 10 years for Ch. 7, 7 years for Ch. 13.
What it doesn't discharge
Most student loans (absent undue hardship), recent tax debt, child support, alimony, and debts incurred by fraud.
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Sources & Further Reading
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