Yes, you can file bankruptcy on personal loans. Because personal loans are unsecured — no collateral backs them — they sit at the bottom of the payment priority list and are generally eligible for discharge under either Chapter 7 or Chapter 13. Which chapter you use, and whether every dollar actually goes away, depends on your income, your assets, and how the loan was taken out in the first place.
Chapter 7 Versus Chapter 13 for Personal Loans
Chapter 7 is the faster route. A court-appointed trustee reviews your property to see whether any nonexempt assets can be sold for the benefit of creditors. Personal loan lenders hold nonpriority unsecured claims, which means they are last in line. Most Chapter 7 cases are “no-asset” cases: the trustee finds nothing to sell, the lender receives nothing, and the balance is wiped out. Discharge typically arrives about four months after you file.1United States Courts. Discharge in Bankruptcy – Bankruptcy Basics
Chapter 13 is the longer route. Instead of liquidating anything, you propose a three-to-five-year repayment plan funded by your disposable income.2United States Courts. Chapter 13 – Bankruptcy Basics Higher-priority debts like back taxes and child support get paid first. Whatever is left over goes to unsecured creditors, including your personal loan lenders, on a pro-rata basis. When you finish the plan, any remaining personal loan balance is discharged. You spend years in repayment, but you keep your property. That matters if you have home equity or other assets that would not be fully protected in Chapter 7.
Who Qualifies to File
Chapter 7 uses an income-based screen called the means test. If your household income is below the median for your state and family size, you pass automatically. If it is above the median, the court subtracts allowable living expenses from your income and multiplies the result by 60 months to estimate your disposable income over five years.
Where that number falls decides your options. Under $10,275 in projected 60-month disposable income, there is no presumption of abuse and Chapter 7 stays available. Above $17,150, the court presumes you can repay a meaningful share of your debts and will push you toward Chapter 13. Between those figures, the court compares the number to 25 percent of your total nonpriority unsecured debt.3Federal Register. Adjustment of Certain Dollar Amounts Applicable to Bankruptcy Cases These thresholds adjust every three years; the current set took effect April 1, 2025.
Chapter 13 has debt caps instead of an income test. Your unsecured debts must be below $526,700 and your secured debts below $1,580,125 at the filing date.2United States Courts. Chapter 13 – Bankruptcy Basics Most people filing primarily over personal loans sit well inside those limits.
When a Personal Loan Can Survive Bankruptcy
Most personal loan balances get discharged without a fight. A few situations are different.
Fraud on the Application
If you got the loan by lying — inflating income, hiding other debts — the lender can argue the debt should survive. Under 11 U.S.C. § 523(a)(2), money obtained through false pretenses, false representations, or actual fraud is not dischargeable.4Office of the Law Revision Counsel. 11 U.S.C. 523 – Exceptions to Discharge The lender has to prove you made a materially false written statement about your finances, that it reasonably relied on it, and that you intended to deceive. The bar is high, but lenders with evidence will take the shot, and if they win, you owe the full balance after your other debts are gone.
Last-Minute Luxury Spending and Cash Advances
The code creates a rebuttable presumption that certain recent spending is nondischargeable. Consumer debts to a single creditor totaling more than $900 for luxury goods or services within 90 days of filing are presumed nondischargeable. Cash advances totaling more than $1,250 within 70 days of filing face the same presumption.3Federal Register. Adjustment of Certain Dollar Amounts Applicable to Bankruptcy Cases Those figures adjusted upward on April 1, 2025.
“Presumed” is the key word. You can rebut by showing the spending was necessary or that you genuinely intended to repay. But the burden is yours, and judges are skeptical of large discretionary charges right before a filing. The luxury rule does not cover items reasonably necessary for your support or a dependent’s — groceries and basic clothing are outside it, even if they exceed $900.5Office of the Law Revision Counsel. 11 U.S.C. 523 – Exceptions to Discharge
What Happens to a Co-Signer
This is where filers get blindsided. Your discharge releases you from the obligation. If someone co-signed your personal loan, the lender can turn around and pursue that person for the full balance. The debt does not disappear; your personal liability for it does. If a parent, spouse, or friend co-signed and you file Chapter 7, the lender will almost certainly shift collection efforts to them.
Chapter 13 offers something Chapter 7 does not: a co-debtor stay. As long as your case is active and your plan proposes to pay the co-signed debt, creditors cannot go after the co-signer.6Office of the Law Revision Counsel. 11 U.S.C. 1301 – Stay of Action Against Codebtor The protection applies to consumer debts — personal loans used for personal, family, or household purposes. It does not reach debts your co-signer incurred in the ordinary course of their own business.
A lender can ask the court to lift the co-debtor stay in three situations: if the co-signer actually received the loan proceeds rather than you, if your plan does not propose to pay the claim, or if keeping the stay in place would cause the lender irreparable harm.6Office of the Law Revision Counsel. 11 U.S.C. 1301 – Stay of Action Against Codebtor If you want to shield a co-signer, Chapter 13 with full payment of that claim is the clearest path.
Tax Treatment of the Discharged Balance
Outside bankruptcy, canceled debt is normally taxable income. If a lender settles and writes off $15,000, the IRS treats that $15,000 as money you earned. Bankruptcy is different. Debt discharged in a Title 11 case is excluded from your gross income, so you owe no federal income tax on the forgiven balance.7Internal Revenue Service. Publication 4681 – Canceled Debts, Foreclosures, Repossessions, and Abandonments
Your lender may still send a Form 1099-C showing the canceled amount if it is $600 or more. You claim the exclusion by attaching Form 982 to your federal return for the year of discharge, checking the box for a Title 11 case, and entering the excluded amount.8Internal Revenue Service. Instructions for Form 982 One catch: the exclusion requires you to reduce certain tax attributes, such as net operating loss carryovers and certain credit carryovers, by the excluded amount. For most individuals discharging personal loans, this has little practical effect, but review it with a tax preparer if you have business losses or other carryovers.
What Filing Costs and What Happens Along the Way
Filing fees are $338 for Chapter 7 and $313 for Chapter 13. Chapter 7 filers whose income is below 150 percent of the federal poverty guidelines can apply for a full fee waiver; anyone else can request permission to pay in installments. Attorney fees are the larger expense. Chapter 7 representation averages roughly $1,200 to $2,000 nationwide, with wide variation by location. Chapter 13 attorney fees tend to be higher because the case spans years, and many Chapter 13 attorneys fold their fees into the repayment plan so there is no large upfront cost.
Before you file, you have to complete a credit counseling session with an agency approved by the U.S. Trustee’s Office. The session has to happen within 180 days before filing.9Office of the Law Revision Counsel. 11 U.S. Code 109 – Who May Be a Debtor It usually takes about an hour online or by phone. Skip it and the court dismisses your case. After filing, there is a second requirement: a financial management education course. The court will not grant your discharge until you finish it. Each course runs roughly $10 to $50, with fee waivers for filers below 150 percent of the poverty guidelines.
When you file your petition, every personal loan you want discharged has to be listed on Schedule E/F.10U.S. Courts. Schedule E/F: Creditors Who Have Unsecured Claims (Individuals) Leave a lender off and that particular loan can survive the bankruptcy entirely. Check your records against your credit report to catch anything you may have forgotten.
The moment the petition is filed, an automatic stay takes effect. Creditors must stop calling, suing, or taking any other collection action on your personal loans.11Office of the Law Revision Counsel. 11 U.S.C. 362 – Automatic Stay A lender that ignores the stay can face court-imposed sanctions. The stay stays in place for the duration of your case.
Shortly after filing, the U.S. Trustee schedules a meeting of creditors, commonly called the 341 meeting.12Office of the Law Revision Counsel. 11 U.S. Code 341 – Meetings of Creditors and Equity Security Holders It is not a courtroom hearing — the judge is not allowed to attend. The trustee asks you questions under oath about your finances, your assets, and the accuracy of your paperwork. Personal loan creditors are invited but rarely show up for unsecured debt. Creditors then have 60 days from the meeting date to file a complaint challenging the dischargeability of a specific debt. If none do, Chapter 7 discharge usually issues promptly once that window closes.1United States Courts. Discharge in Bankruptcy – Bankruptcy Basics
How It Shows Up on Your Credit Report
Under the Fair Credit Reporting Act, a bankruptcy filing can remain on your credit report for up to 10 years from the date the court enters the order for relief.13Office of the Law Revision Counsel. 15 U.S.C. 1681c – Requirements Relating to Information Contained in Consumer Reports The statute draws no distinction between Chapter 7 and Chapter 13, but the major credit bureaus voluntarily remove completed Chapter 13 cases after seven years. Individual accounts discharged in bankruptcy are typically reported as “included in bankruptcy” or “discharged.”
The initial hit is severe, often 150 to 200 points depending on where your score started. For someone already months behind with collections piling up, the practical gap between the current score and the post-bankruptcy score is usually smaller than it looks. Scores begin recovering from the filing date, not the discharge date, and many filers see meaningful improvement within two to three years by using secured credit cards and paying on time.