Yes, credit card debt is one of the main reasons people file bankruptcy
Credit card debt can be included in a bankruptcy filing. In fact, unsecured debts like credit cards are often the primary reason someone chooses to file. When you file for bankruptcy, credit card balances are treated as debts the court will address — either by having you repay part of them on a plan, or by having them discharged (legally erased) entirely, depending on which chapter you file under.
The two most common types of personal bankruptcy are Chapter 7 and Chapter 13. Chapter 7 can wipe out credit card debt completely if you meet the income and asset requirements. Chapter 13 puts you on a repayment plan, usually lasting three to five years, where you pay back a portion of what you owe. Both routes stop creditors from calling, suing, or garnishing your wages the moment you file.
Key Takeaways
- Credit card debt is unsecured debt, which means it can be discharged in Chapter 7 bankruptcy or included in a repayment plan under Chapter 13.
- Chapter 7 requires passing a means test based on your income and expenses; if you earn too much, you may be required to file Chapter 13 instead.
- Once you file, an automatic stay goes into effect when ready, stopping collection calls, lawsuits, and wage garnishment.
- You must complete credit counseling before filing and a financial management course after filing to receive a discharge.
- Bankruptcy remains on your credit report for seven to ten years, but many people rebuild credit faster than they would by paying off large card balances.
How credit cards are treated in Chapter 7 bankruptcy
In Chapter 7, credit card debt is listed as an unsecured claim. This means the credit card company has no collateral — unlike a mortgage lender or car loan company — so they stand in line behind secured creditors if you have assets to liquidate. A Chapter 7 trustee is appointed to review your case, and if you own property beyond what the law allows you to keep (called exemptions), the trustee can sell it to pay creditors. Most people filing Chapter 7 have few or no assets, so credit card debts are straightforward discharged 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 to the median income in your state for a family your size. If you earn less than the median, you pass automatically. If you earn more, the test subtracts allowed living expenses from your income; if what remains is below a threshold set by federal law, you still pass. If you fail the means test, the court may require you to file Chapter 13 instead, or dismiss your case.
How credit cards are treated in Chapter 13 bankruptcy
Chapter 13 is a repayment plan, not a discharge. You propose a plan to the court showing how you will repay your debts over three to five years. Credit card balances are included in this plan. The amount you actually repay depends on your income, expenses, and the total amount you owe. Many people repay only a fraction of their credit card debt under Chapter 13 — sometimes 10 to 50 percent — and the remainder is discharged when the plan ends.
Chapter 13 is often chosen by people who earn too much to pass the means test for Chapter 7, or who want to keep assets like a home or car that Chapter 7 might force them to sell. It also stops foreclosure or repossession when ready, giving you time to catch up on missed payments through the plan. Unlike Chapter 7, you keep all your property, but you must stick to the repayment schedule for the full three to five years.
What happens to your credit cards after filing
Once you file for bankruptcy, the automatic stay takes effect when ready. This is a court order that stops creditors from contacting you, suing you, garnishing your wages, or taking other collection action. Credit card companies must stop calling within days of receiving notice of your filing. If they continue, you can file a motion to hold them in contempt of court.
During your bankruptcy case, you cannot use the credit cards you are including in the filing. The accounts will be closed by the creditors or by the court. After your case is discharged, you are no longer legally obligated to pay those balances, but the accounts will appear as "included in bankruptcy" on your credit report. You can explore for new credit when ready after discharge, though interest rates will be higher at first. Many people are offered secured credit cards or subprime cards within weeks of discharge, and using these responsibly helps rebuild credit faster than waiting.
The costs and timeline for filing bankruptcy
Filing fees for bankruptcy are set by federal law and do not vary by the amount of debt you owe. As of 2024, the filing fee is $338 for Chapter 7 and $313 for Chapter 13. You may also owe attorney fees, which vary by location and complexity; many bankruptcy attorneys charge between $1,000 and $3,000 for a straightforward Chapter 7 case. Some courts allow you to pay the filing fee in installments if you cannot pay it all at once.
The timeline depends on the chapter. Chapter 7 typically takes three to six months from filing to discharge. Chapter 13 takes the full length of your repayment plan — three to five years — before you receive a discharge. During this time, you must complete two mandatory courses: a credit counseling course before you file (which costs $10 to $50) and a financial management course after filing (which also costs $10 to $50). Both are offered online and take one to two hours.
Alternatives to bankruptcy for credit card debt
Bankruptcy is not the only option. Debt consolidation combines multiple credit card balances into a single loan, usually at a lower interest rate, which can reduce the total amount you pay over time. Debt settlement involves negotiating with creditors to accept less than you owe, though this damages your credit and may result in a tax bill. A debt management plan, offered by nonprofit credit counseling agencies, restructures your payments without filing bankruptcy, though creditors are not legally required to participate.
These alternatives work better if you have a stable income and can afford to pay something toward your debt. Bankruptcy is typically the right choice when your debt is very large relative to your income, or when you are already facing lawsuits or wage garnishment. A bankruptcy attorney or nonprofit credit counselor can review your specific situation and explain which route makes sense for you.
How bankruptcy affects your credit and future borrowing
Bankruptcy remains on your credit report for seven years (Chapter 13) or ten years (Chapter 7) from the filing date. This sounds severe, but the impact on your credit score decreases over time, especially if you build positive payment history after discharge. Many people see their credit score rise within months of discharge because the bankruptcy stops the damage from missed payments, collections, and lawsuits — all of which hurt your score more than the bankruptcy filing itself.
After bankruptcy, you can borrow again. Federal law does not prohibit lending to someone who has filed bankruptcy. Mortgage lenders typically require two years to pass after a Chapter 7 discharge before you can refinance an FHA loan, and three years for a conventional loan. Credit card companies often extend offers within weeks. The interest rates will be higher than what someone with excellent credit pays, but they normalize over time as you demonstrate on-time payments.
Frequently Asked Questions
Will bankruptcy erase all my credit card debt?
Chapter 7 can erase credit card debt entirely if you pass the means test and complete the required courses. Chapter 13 includes credit cards in a repayment plan, and any balance not repaid over three to five years is discharged. Some credit card debt may not be discharged if it was incurred through fraud or if the card was used shortly before filing, though these situations are uncommon.
Can I keep one credit card and not include it in bankruptcy?
You must list all debts in your bankruptcy filing. You cannot choose to exclude a credit card you want to keep. If you do not list a debt, the creditor can still pursue collection after your case ends. However, if a family member is a co-signer on a card, you may be able to work out a separate arrangement with that creditor before filing.
How much will bankruptcy cost me?
Filing fees are $313 to $338, set by federal law. Attorney fees vary by location and case complexity, typically $1,000 to $3,000 for Chapter 7. Credit counseling and financial management courses cost $10 to $50 each. Some courts allow you to pay the filing fee in installments. Many bankruptcy attorneys offer free initial consultations.
Will I lose my house or car if I file bankruptcy?
Chapter 7 can result in losing a home or car if you have equity beyond what state law allows you to protect (called exemptions). Chapter 13 lets you keep all property, but you must stay current on mortgage or car payments and include any arrears in your repayment plan. An attorney can review your state's exemptions and tell you what you would keep.
How soon can I get credit after bankruptcy?
You can explore for credit when ready after discharge. Secured credit cards and subprime cards are often available within weeks. Mortgage lenders typically require two to three years to pass after discharge. Your credit score usually improves within months because the bankruptcy stops the ongoing damage from missed payments and collections.