Filing Bankruptcy to Eliminate Credit Card Debt
Yes, you can file bankruptcy specifically to discharge credit card debt, but it works differently depending on which chapter you file
Credit card debt is one of the most common reasons people file for bankruptcy. When you file, the court can legally erase unsecured debts like credit cards through a process called discharge. This means you no longer owe the money — the creditor cannot collect it, and it stops appearing on your credit report after a set time.
The two main paths are Chapter 7 and Chapter 13. Chapter 7 wipes out credit card debt entirely if you meet the income test. Chapter 13 restructures your debt into a repayment plan, usually lasting three to five years, where you pay back a portion of what you owe. Which one you can file depends on your income, assets, and whether you have other debts like a mortgage or car loan.
Filing bankruptcy is a serious legal step with real costs to your credit and finances. It stops collection calls immediately and prevents wage garnishment, but it stays on your credit report for seven to ten years. You will need to understand the filing process, what debts it covers, and what happens to your property before you decide whether it makes sense for your situation.
Key Takeaways
- Chapter 7 bankruptcy erases credit card debt entirely if your income is below your state's median; Chapter 13 restructures it into a repayment plan over three to five years.
- You must pass the means test, which compares your household income to your state's median income, to file Chapter 7.
- Filing stops collection calls and wage garnishment immediately through an automatic stay, but it damages your credit score for seven to ten years.
- Credit card debt is unsecured, meaning the creditor has no claim to your property, so it is typically the first debt discharged in bankruptcy.
- You must complete credit counseling before filing and a financial management course after filing, both through court-approved providers.
How Chapter 7 bankruptcy erases credit card debt
Chapter 7 is called liquidation bankruptcy because the court can sell your non-exempt assets to pay creditors. However, most people filing Chapter 7 have few or no assets to sell, so credit card debt gets discharged — legally erased — at the end of the case, usually within three to six months.
To file Chapter 7, you must pass the means test. This compares your household income over the past six months to your state's median income. If you earn less than the median, you pass automatically. If you earn more, the test subtracts allowed expenses (housing, food, transportation, child support) from your income. If what remains is below a threshold set by the court, you still pass. If it is above the threshold, you do not may have access to for Chapter 7 and must consider Chapter 13 instead.
Once the court discharges your credit card debt in Chapter 7, the creditor cannot pursue you further. They cannot sue, garnish wages, or report new collection activity. The debt is gone. However, you lose the ability to use those credit cards, and the bankruptcy filing itself stays on your credit report for ten years.
How Chapter 13 bankruptcy restructures credit card debt
Chapter 13 is called reorganization bankruptcy. Instead of erasing debt, it creates a court-approved repayment plan lasting three to five years. You make one monthly payment to a bankruptcy trustee, who distributes the money to your creditors according to the plan.
In Chapter 13, credit card debt is unsecured, meaning it has no collateral attached. This matters because the court prioritizes secured debts (like a mortgage or car loan) and priority debts (like child support or recent taxes) first. Credit cards typically get paid last, and often receive only a portion of what you owe. At the end of the plan, any remaining credit card balance is discharged.
Chapter 13 does not require you to pass the means test. Anyone can file it, regardless of income. It is useful if you earn too much for Chapter 7, if you want to keep your home or car, or if you have debts that cannot be discharged in Chapter 7 (like recent taxes or student loans). Like Chapter 7, it triggers an automatic stay that stops collection calls and wage garnishment immediately.
What happens to your credit and finances after filing
Filing bankruptcy damages your credit score significantly. Most people see a drop of 130 to 200 points or more, depending on where they started. A Chapter 7 filing stays on your credit report for ten years; a Chapter 13 stays for seven years. However, your score can begin recovering within one to two years if you use credit responsibly after filing.
You will not lose all your property. Federal and state bankruptcy laws protect certain assets through exemptions. These typically include your primary home (up to a certain value), your car, household goods, and tools of your trade. The exact amounts vary by state. A bankruptcy attorney can tell you what you would keep in your state.
After filing, you must complete a financial management course through a court-approved provider. This is separate from the credit counseling you complete before filing. Both are required by law. The courses cost between $50 and $150 each and can often be taken online.
The automatic stay: what stops immediately when you file
The moment you file bankruptcy, the court issues an automatic stay. This is a court order that stops most creditors from collecting. Collection calls stop. Lawsuits pause. Wage garnishment halts. Foreclosure proceedings freeze. This protection applies to credit card companies, medical debt collectors, and most other unsecured creditors.
The automatic stay does not stop all collection activity. Child support and alimony collection continues. Some tax collection continues. If you have a car loan or mortgage and you want to keep the property, you must stay current on those payments or the lender can ask the court to lift the stay and proceed with repossession or foreclosure.
The automatic stay lasts for the entire bankruptcy case. In Chapter 7, that is usually three to six months. In Chapter 13, it lasts for the entire three- to five-year repayment plan. If a creditor violates the stay by continuing to collect after filing, you can sue them for damages.
What debts bankruptcy does and does not cover
Credit card debt is unsecured and dischargeable, meaning bankruptcy can erase it completely. The same is true for medical debt, personal loans, and most collection accounts. These debts disappear in Chapter 7 or are paid through the plan in Chapter 13.
Some debts cannot be discharged. Student loans are generally not discharged unless you can prove undue hardship, a high legal bar. Recent income taxes (usually the last three years) cannot be discharged. Child support and alimony cannot be discharged. Debts incurred through fraud cannot be discharged. If you have a car loan or mortgage and want to keep the property, you must continue paying those debts even in bankruptcy.
Credit card debt incurred shortly before filing can sometimes be challenged by the creditor or trustee. If you took a cash advance or made large purchases within 90 days of filing, the creditor may argue the debt should not be discharged. However, this is uncommon and requires the creditor to take action in court.
The filing process and what it costs
Filing bankruptcy requires completing detailed paperwork about your income, expenses, assets, and debts. You must file this with the federal bankruptcy court in your district. The court filing fee is currently $338 for Chapter 7 and $313 for Chapter 13, though you can request a fee waiver if you cannot afford it.
Most people hire a bankruptcy attorney to handle the filing. Attorney fees vary widely by location and complexity, typically ranging from $1,000 to $3,000 for a straightforward Chapter 7 case and $2,500 to $6,000 for Chapter 13. Some attorneys offer payment plans. Legal aid organizations in your area may provide free representation if you meet income limits.
After you file, the court assigns a trustee to your case. In Chapter 7, the trustee reviews your assets and may sell them to pay creditors. In Chapter 13, the trustee collects your monthly payment and distributes it to creditors. You will attend a meeting of creditors, usually called the 341 meeting, where the trustee and creditors can ask you questions about your finances. Most creditors do not attend.
Alternatives to bankruptcy for credit card debt
Bankruptcy is not the only option. Debt settlement involves negotiating with creditors to pay a lump sum less than what you owe. This damages your credit but may be faster than bankruptcy if you have cash available. Credit counseling through a nonprofit agency can help you create a budget and contact creditors to negotiate lower payments or interest rates.
A debt management plan through a credit counseling agency consolidates your payments into one monthly payment to the agency, which distributes it to creditors. This does not erase debt but can lower interest rates and stop collection calls. It typically takes three to five years, similar to Chapter 13, but does not have the legal protections of bankruptcy.
If you have significant assets or income, you might be able to pay down credit card debt over time without bankruptcy. If you are facing wage garnishment or foreclosure, bankruptcy may be the only tool that stops these actions immediately. A bankruptcy attorney can review your specific situation and explain which option makes sense.
Frequently Asked Questions
Will bankruptcy erase all my credit card debt?
In Chapter 7, yes — all dischargeable credit card debt is erased. In Chapter 13, credit card debt is included in the repayment plan, and any balance remaining after you complete the plan is discharged. Credit card debt is unsecured, so it is typically one of the first debts to be eliminated.
How long does it take to discharge credit card debt in bankruptcy?
Chapter 7 typically takes three to six months from filing to discharge. Chapter 13 takes three to five years, depending on your plan. The discharge order is the final step in both cases, after which creditors can no longer collect.
Can I keep my credit cards after bankruptcy?
No. The credit card accounts included in your bankruptcy are closed and discharged. After bankruptcy, you can apply for new credit, though you will likely face higher interest rates and lower credit limits initially. Some people rebuild credit by using a secured credit card, which requires a cash deposit.
What if I owe money to a credit card company that is also my bank?
If you have a checking or savings account at the same bank, the bank may have a right of setoff — the ability to take money from your account to pay the debt. Bankruptcy law limits this right, but it is complex. Tell your bankruptcy attorney about any accounts at the same institution as a creditor.
Does bankruptcy stop collection calls immediately?
Yes. The automatic stay, issued when you file, stops most collection calls the same day. Creditors who continue calling after receiving notice of the bankruptcy are violating the stay. However, you must make sure the creditor receives proper notice of your filing for the stay to apply to them.