Bankruptcy Q&A: Will You Lose Your House or Car? How Long It Stays on Your Credit? And What Chapter 7 vs. Chapter 13 Really Means

If you’re buried under credit cards, medical bills, or loan payments, the word “bankruptcy” can feel scary — but it’s also one of the most powerful legal tools available to help people get a fresh start.

On WAAY 31 LawCall (1/25/26), attorney Ron Sykstus of Bond, Botes, Sykstus & Tanner answered live questions about the most common bankruptcy fears we hear every day:

• “Will I lose my house?”
• “Will I lose my car?”
• “Can bankruptcy stop a foreclosure or garnishment?”
• “Can I include student loans?”
• “How long does bankruptcy stay on my credit report?”
• “Is my 401(k) protected?”

Below is a plain-English breakdown of the key takeaways — and you can watch the full episode here.

Watch: WAAY 31 LawCall – Bankruptcy Questions Answered (1/25/26)

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Chapter 7 vs. Chapter 13: What’s the Difference?

Most consumers file under Chapter 7 or Chapter 13.

Chapter 7 Bankruptcy (Debt Wipe / “Straight Bankruptcy”)

Chapter 7 is designed to eliminate unsecured debt, including:

• credit cards
• personal/signature loans
• many medical bills

But the big concern is assets and equity — especially home equity in states with lower exemption limits.

Chapter 13 Bankruptcy (Reorganization / Payment Plan)

Chapter 13 is a court-approved repayment plan that can help you:

• stop foreclosure and catch up missed mortgage payments
• stop repossession and catch up vehicle payments
• manage non-dischargeable debts like certain taxes and student loans through a structured plan

If you have equity issues or need time to catch up on secured debt, Chapter 13 is often the safer option.

“Will I Lose My House in Bankruptcy?”

This depends heavily on:

• what chapter you file
• how much equity you have
• what exemptions apply in your state

On the show, Ron explained that although bankruptcy is federal law, states can control exemptions. In Alabama, homestead and personal property exemptions are limited, so equity can become a real issue — especially after home values increased in recent years.

If your equity exceeds what can be protected, a Chapter 7 case can put the home at risk, while Chapter 13 may help you protect the home depending on your situation.

Bottom line: don’t guess. Equity surprises are one of the biggest reasons people regret filing without guidance.

“Will I Lose My Car in Bankruptcy?”

Often, bankruptcy can help you keep your car, but it depends on:

• whether the vehicle is financed
• if you’re behind
• how much equity you have (if it’s paid off)
• your state exemptions

Bankruptcy can also help if a repossession is pending — timing matters.

Can Bankruptcy Stop Foreclosure or Garnishments?

Yes — bankruptcy can stop:

• foreclosure (in many cases)
• wage garnishments
• collection lawsuits

But timing is critical.

Ron also explained that in Alabama, foreclosure can move extremely fast compared to other states, so waiting until the last minute can take options off the table.

What Debts Can’t Be Discharged in Bankruptcy?

Some debts generally do not go away in bankruptcy, including:

• child support and alimony
• most student loans
• many tax debts
• certain court-ordered damages (in specific scenarios)

That said, bankruptcy can still help even when some debts survive — because it can eliminate other obligations and free up cash flow.

Can You Include Student Loans in Bankruptcy?

Student loans are generally not dischargeable, but there is a narrow exception called “undue hardship.”

To pursue it, you typically must file a separate action in bankruptcy court (an adversary proceeding) and meet a high legal standard.

Translation: it’s possible in limited cases, but it’s not easy — and it requires the right strategy.

Are 401(k)s and IRAs Protected in Bankruptcy?

Yes — on the show, Ron explained that most retirement accounts (like 401(k)s and many IRAs) are protected in bankruptcy.

Important warning: inherited retirement accounts may not be protected the same way, which can create risk depending on how the funds were received and held.

How Long Does Bankruptcy Stay on Your Credit Report?

Ron discussed the federal law that governs credit reporting, and how long items can remain:

• Bankruptcy typically appears for up to 10 years from the filing date.
• Many other negative credit items can remain for up to 7 years, often tied to the “last activity” on the account.

Here’s the key point most people don’t realize:

If your credit is already damaged by late payments, collections, lawsuits, garnishments, or judgments, bankruptcy may not “destroy” your credit — and many people see improvement after discharge because the debt-to-income pressure and collection activity stop.

What About Judgment Liens on a House?

One of the most important segments of the episode was about judgment liens.

Ron explained that:

• a judgment lien can attach to real estate
• it can last for years and continue to grow
• bankruptcy may discharge the debt, but the lien may still exist unless it’s specifically addressed

This is exactly why a consultation matters — liens are technical, and they’re easy to miss if you don’t know what you’re looking for.

Should You File Bankruptcy If You’re Facing Overwhelming Debt?

If you’re living in a cycle of minimum payments, drained savings, or constant collection pressure, it may be time to at least explore options.

A good bankruptcy consult will help you understand:

• whether Chapter 7 or Chapter 13 fits
• what risks you have (home equity, vehicles, liens)
• what documents you’ll need
• what you should and shouldn’t do before filing

Talk to a Bankruptcy Attorney

If you’re considering bankruptcy or just want clarity on your options, Bond & Botes can help you understand the safest path forward for your specific situation.

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