Here’s what people usually mean when they say they want to file bankruptcy for unsecured debt only: they want to wipe out credit cards, medical bills, and personal loans—but keep their house, car, and other property.
The good news? Bankruptcy is designed to do exactly that.
Unsecured debt is any debt that isn’t backed by collateral. Think of it this way: if you stop paying and the creditor can’t repossess anything, it’s unsecured. Credit cards are the classic example. Medical bills, personal loans, old utility bills—all unsecured.
Secured debt is the opposite. Your mortgage is secured by your house. Your auto loan is secured by your car. Stop paying, and they can take the asset.
When you file bankruptcy, you must list all your debts—both secured and unsecured. But here’s the clever part: you can choose to keep paying your secured debts and surrender only the unsecured ones for discharge.
Chapter 7 Bankruptcy: The Fast Track to Debt Elimination
If you’re looking to eliminate unsecured debt quickly, Chapter 7 bankruptcy is your best friend.
Chapter 7 wipes out most unsecured debts in just 3 to 5 months. No repayment plan. No drawn-out negotiations. Just a clean slate.
Here’s how it works:
You file your bankruptcy petition with the court. An automatic stay immediately goes into effect, stopping all collection activity—no more calls, no more lawsuits, no wage garnishments. A bankruptcy trustee reviews your case to see if you have any non-exempt assets they could sell to pay creditors. (Spoiler: most people don’t.) You attend a meeting of creditors, which is usually quick and straightforward. The court issues your discharge order, and boom—your unsecured debts are gone forever.
What gets eliminated in Chapter 7:
- Credit card balances
- Medical bills
- Personal loans
- Payday loans
- Old utility bills
- Most collection accounts
- Store credit cards
The beauty of Chapter 7 is that it’s specifically designed for people who can’t afford to repay their debts. If you’re struggling to make minimum payments on your credit cards while trying to keep up with your mortgage or car payment, Chapter 7 lets you eliminate the unsecured debt without touching your secured assets.
Who Qualifies for Chapter 7?
Not everyone can file Chapter 7. You need to pass the means test, which compares your income to the median income in your state. If you earn less than the median, you’re in. If you earn more, the test looks at your disposable income after subtracting allowed expenses.
The means test exists to prevent abuse—it ensures that people who could repay at least some of their debts don’t just walk away from them entirely. If you don’t pass, you might need to file Chapter 13 instead, which we’ll cover next.
Chapter 13 Bankruptcy: Reorganize and Discharge
Maybe you earn too much for Chapter 7. Or maybe you’re behind on your mortgage and need time to catch up. That’s where Chapter 13 bankruptcy comes in.
Chapter 13 doesn’t wipe out your debts immediately. Instead, it reorganizes them into a repayment plan lasting 3 to 5 years. You make monthly payments to a bankruptcy trustee, who distributes the money to your creditors according to a court-approved plan.
Here’s what makes Chapter 13 interesting for unsecured debt: you typically only repay a fraction of what you owe. The rest gets discharged at the end of your plan.
Let’s say you owe $40,000 in credit card debt and $10,000 in medical bills. Your Chapter 13 plan might only require you to pay $15,000 total over 5 years. Once you complete the plan, the remaining $35,000 is discharged—gone forever.
Chapter 13 is ideal if you:
- Earn too much to qualify for Chapter 7
- Are behind on your mortgage and need to catch up
- Want to keep a car with significant equity
- Have non-exempt assets you don’t want to lose
- Need more time to handle your debts
The automatic stay still applies, stopping collection activity just like in Chapter 7. But unlike Chapter 7, you’re making payments—just on terms you can actually afford. For more information on tackling overwhelming debt, check out our guide on how to get rid of debt without filing bankruptcy.
What Unsecured Debts Can’t Be Discharged?
Not all unsecured debts are dischargeable, even in bankruptcy. Some debts are considered too important to society—or too tied to wrongdoing—to eliminate.
Non-dischargeable unsecured debts include:
Student loans. This is the big one. Federal and private student loans survive bankruptcy in almost all cases. The only exception is if you can prove “undue hardship,” which is extremely difficult. Courts have a very high bar for this standard. If you’re struggling with student loan payments, you might explore income-based repayment options for private student loans instead.
Child support and alimony. These obligations never go away in bankruptcy. Ever. The law prioritizes supporting children and former spouses.
Recent income taxes. Tax debt less than three years old generally can’t be discharged. Older tax debt might be dischargeable if it meets specific criteria.
Court fines and criminal restitution. If you owe money because of a criminal case, bankruptcy won’t help.
Debts from fraud or intentional harm. If you racked up debt through fraud, or if you owe someone money because you intentionally hurt them, that debt survives bankruptcy.
Debts not listed in your bankruptcy filing. If you forget to list a debt, it won’t be discharged. That’s why accuracy matters when filing.
Will Filing Bankruptcy Affect Your Home or Car?
This is usually the biggest fear people have. “If I file bankruptcy, will I lose my house? What about my car?”
Generally, no—if you’re current on payments and meet certain conditions.
Bankruptcy primarily targets your unsecured debts. Your secured debts (house, car) work differently. Here’s what you need to know:
Keeping Your Home
If you want to keep your house, you typically need to:
- Stay current on mortgage payments
- Have equity that’s protected by state exemptions
- Continue making payments after filing
Most states have homestead exemptions that protect a certain amount of equity in your primary residence. If your equity falls within the exemption amount, the bankruptcy trustee can’t touch your house.
For example, if your state’s homestead exemption is $50,000, and you have $30,000 in equity, your home is fully protected. You keep making mortgage payments, and you keep your house.
If you have more equity than your exemption covers, Chapter 13 might be a better option than Chapter 7, as it allows you to pay the “extra” equity to creditors over time rather than having the trustee sell your home.
Keeping Your Car
The same principle applies to your vehicle. Most states have motor vehicle exemptions that protect a certain amount of equity. If your car’s equity is within the exemption limit and you’re current on payments, you can keep it.
In Chapter 7, you might need to sign a reaffirmation agreement—basically a new contract saying you’ll keep paying the loan and the lender can repossess if you default. Some people choose to “redeem” their vehicle by paying its current value in a lump sum, which can be beneficial if you owe more than the car is worth.
In Chapter 13, your car loan gets wrapped into your repayment plan, and you might even be able to reduce the loan balance to the vehicle’s current value (called a “cram down”) if you’ve had the loan long enough.
Does Bankruptcy Stop Collection Calls and Lawsuits?
Absolutely. This is one of the most immediate and powerful benefits of filing bankruptcy.
The moment you file, something called the automatic stay goes into effect. It’s a federal court order that stops virtually all collection activity cold:
- Collection calls stop
- Threatening letters stop
- Text messages stop
- Wage garnishments halt
- Lawsuits freeze
- Repossessions pause
Creditors who violate the automatic stay can face serious penalties, including fines and sanctions. Most creditors know this, so they stop immediately once they’re notified of your bankruptcy filing.
The automatic stay is particularly powerful if you’re facing wage garnishment. If your paycheck is already being garnished for unsecured debt, filing bankruptcy stops it, and you get your full paycheck back while your case proceeds.
There are a few exceptions. The automatic stay doesn’t stop child support or alimony collection, criminal proceedings, or certain tax proceedings. But for typical unsecured debt collection, it’s incredibly effective.
How Bankruptcy Compares to Other Debt Relief Options
You might be wondering: is bankruptcy really my best option? What about debt settlement or credit counseling?
Let’s break it down.
Bankruptcy vs. Debt Settlement
Debt settlement involves negotiating with creditors to pay less than you owe—often 40% to 60% of the balance. Sounds good, right?
Here’s the catch: you typically need to stop paying your debts first to convince creditors you’re in dire straits. That tanks your credit. You get sued. Wages get garnished. And there’s no guarantee creditors will settle. Even if they do, you might owe taxes on the forgiven amount.
Bankruptcy is usually cheaper, faster, and more reliable:
- Eliminates 100% of the debt, not just a portion
- Stops lawsuits instantly through the automatic stay
- No taxes on discharged debt
- Protects your wages from garnishment
- More predictable timeline and outcome
If you’re considering alternatives, our article on debt consolidation explores another option worth understanding.
Bankruptcy vs. Credit Counseling
Credit counseling agencies set up debt management plans where you make one monthly payment and they distribute it to your creditors. Interest rates might be reduced, and you pay off the debt over 3 to 5 years.
This works if you can afford to repay your full debt balances with lower interest. But if you’re truly overwhelmed and can’t afford even reduced payments, bankruptcy is the more definitive solution.
Credit counseling doesn’t provide legal protection—creditors can still sue you. Bankruptcy does. For more on this topic, explore our guide to the best free credit counseling services.
How Much Does It Cost to File Bankruptcy?
Let’s talk dollars and cents, because cost is a legitimate concern when you’re already financially stressed.
Chapter 7 filing fee: $338 (as of 2025) Chapter 13 filing fee: $313 (as of 2025)
But that’s just the court filing fee. Most people hire an attorney, and that’s where the real cost comes in.
Average attorney fees:
- Chapter 7: $1,000 to $2,500
- Chapter 13: $3,000 to $5,000
Yes, it’s expensive. But consider this: if you’re drowning in $30,000 of unsecured debt, paying $1,500 to eliminate it completely is a 95% discount. Most bankruptcy attorneys offer payment plans, and in Chapter 13, attorney fees are often rolled into your repayment plan.
Some people file pro se (without an attorney) to save money. This is legally allowed but risky. Bankruptcy law is complex, and mistakes can delay your case, get it dismissed, or result in you losing assets you could have protected. The U.S. Courts website offers free bankruptcy resources, but most experts recommend getting professional help.
Will Bankruptcy Hurt Your Credit Score?
Let’s be honest: yes, bankruptcy will initially lower your credit score. It’s typically a 130 to 200 point drop, depending on where you started.
But here’s the thing most people don’t realize: if you’re already behind on payments, being sued, or having accounts sent to collections, your credit is already trashed. Bankruptcy might not hurt as much as you think—and it actually gives you a path to rebuild.
The bankruptcy stays on your credit report for:
- Chapter 7: 10 years from filing date
- Chapter 13: 7 years from filing date
Sounds scary, right? But here’s the reality: most people who file bankruptcy see their credit scores start to recover within 6 to 12 months. Many have higher scores within 1 to 2 years than they did before filing.
Why? Because bankruptcy eliminates your debt-to-income ratio problem. You’re no longer drowning in debt. You can start making on-time payments on the obligations you kept. You’re financially stable again. For tips on rebuilding after financial setbacks, our guide on avoiding debt in the future can help you stay on track.
Credit card companies start sending offers again (often secured cards at first). You can start rebuilding. And within a few years, that bankruptcy notation on your credit report matters less and less to lenders.
Do You Need a Lawyer to File Bankruptcy?
Legally, no. Practically, yes.
The bankruptcy code doesn’t require you to hire an attorney. You can file on your own. But bankruptcy law is complicated, and the forms are extensive. One mistake can derail your case.
An experienced bankruptcy attorney:
- Ensures you qualify for the chapter you’re filing
- Maximizes exemptions to protect your assets
- Handles all paperwork correctly
- Represents you at the meeting of creditors
- Deals with any objections from creditors or the trustee
- Makes sure you get the full protection of federal bankruptcy law
Think of it this way: you wouldn’t perform surgery on yourself. Bankruptcy is financial surgery. The peace of mind and expertise are worth the cost.
Many bankruptcy attorneys offer free consultations. Use them. Talk to two or three lawyers before deciding. Ask about their experience, success rate, payment plans, and what to expect throughout the process.
How Long Does the Bankruptcy Process Take?
Chapter 7: 3 to 5 months from filing to discharge
The timeline is pretty predictable. You file your petition. About 4 to 6 weeks later, you attend the meeting of creditors (also called a 341 meeting). If there are no complications, the court issues your discharge about 60 to 90 days after the meeting.
Chapter 13: 3 to 5 years
Chapter 13 takes longer because you’re in a repayment plan. The length depends on your income:
- Below median income: 3-year plans
- Above median income: 5-year plans
Once you complete all payments, the court issues your discharge, wiping out whatever unsecured debt remains.
Real Talk: Is Bankruptcy Right for You?
Bankruptcy isn’t for everyone. But it’s also not the shameful, life-ruining disaster some people make it out to be. It’s a legal tool—one that exists specifically to help people overwhelmed by debt get a fresh start.
Consider bankruptcy if:
- You’re drowning in unsecured debt with no realistic way to pay it off
- You’re facing lawsuits or wage garnishment
- Collection calls are affecting your mental health
- You want a definitive, legal solution
- You qualify for Chapter 7 or can afford a Chapter 13 plan
Skip bankruptcy if:
- Your debt is manageable with budgeting or extra income
- Most of your debt is non-dischargeable (student loans, recent taxes)
- You’re about to receive income or assets that could pay off your debt
- You’ve filed bankruptcy recently (you can’t file Chapter 7 again within 8 years)
The stigma around bankruptcy has lessened significantly. Millions of Americans file every year—including successful business owners, medical professionals, and everyday people who hit a rough patch. It’s a legal right, not a moral failure.
Taking the Next Step
If you’re seriously considering bankruptcy for unsecured debt only, here’s what to do:
- Gather your financial documents
- List of all debts (secured and unsecured)
- Income statements (pay stubs, tax returns)
- Asset information (home, car, retirement accounts, etc.)
- Monthly expenses
- Schedule free consultations with bankruptcy attorneys
Most offer free initial consultations. Come prepared with questions:
- Do I qualify for Chapter 7 or Chapter 13?
- How much of my unsecured debt can be eliminated?
- Will I keep my house and car?
- What are your fees and payment options?
- What’s the timeline for my case?
- Complete required credit counseling
You must complete a credit counseling course from an approved provider before filing. This is mandatory and costs about $30 to $50.
- File your petition
Your attorney will prepare and file all necessary paperwork with the bankruptcy court.
- Attend your 341 meeting
This is a short meeting where the trustee asks you questions about your finances under oath. It’s usually straightforward and not as scary as it sounds.
- Complete financial management course
Before you can receive your discharge, you must complete a financial management course (separate from the pre-filing credit counseling). Another $30 to $50.
- Receive your discharge
The court issues an order permanently eliminating your unsecured debts. You’re done.
The Bottom Line
Filing bankruptcy for unsecured debt only is not just possible—it’s common. Thousands of Americans use Chapter 7 and Chapter 13 bankruptcy every year to eliminate credit card debt, medical bills, and personal loans while keeping their homes, cars, and other essential assets.
Yes, bankruptcy affects your credit. But if you’re already struggling with overwhelming debt, your credit is likely already suffering. Bankruptcy gives you a path forward—a way to stop the bleeding, eliminate the debt, and start rebuilding on solid financial ground.
The automatic stay stops collection calls immediately. The discharge eliminates your legal obligation to pay unsecured debts. And the exemptions protect your essential property. It’s a powerful combination of legal protections designed specifically for people in your situation.
Don’t let fear or stigma keep you trapped in a cycle of debt. Talk to a bankruptcy attorney. Get the facts. Understand your options. And make the decision that’s right for your financial future.
You deserve a fresh start. Bankruptcy might be exactly how you get it.
For more financial guidance and resources, visit Wealthopedia.
