Bankruptcy doesn't erase credit cards on its own — you file for bankruptcy, and the court process determines what happens to your cards
Bankruptcy is a legal process, not a form you fill out to cancel debt. When you file, a federal court takes control of your assets and debts. For credit cards specifically, the outcome depends on which chapter you file under. Chapter 7 bankruptcy can eliminate credit card debt entirely, but only if you have few assets and low income. Chapter 13 bankruptcy restructures what you owe into a repayment plan over three to five years, including credit card balances. You cannot choose to "declare bankruptcy on credit cards only" — you file for bankruptcy as a whole, and it affects all your debts together.
The process starts with a petition filed in federal bankruptcy court in your district. You must list every debt, every asset, and your income and expenses. A trustee — a court-appointed official — reviews your case. If you file Chapter 7, the trustee may sell assets to pay creditors. If you file Chapter 13, the trustee oversees your repayment plan. Credit card companies are notified and must stop collection calls when ready once the case is filed. This pause is called the automatic stay.
Key Takeaways
- Chapter 7 bankruptcy can eliminate credit card debt if your income is below your state's median and you pass a means test, but you may lose non-exempt assets.
- Chapter 13 bankruptcy restructures credit card debt into a three- to five-year repayment plan, letting you keep your assets but requiring monthly payments.
- Filing for bankruptcy stops collection calls and lawsuits when ready through the automatic stay, but the process takes months and damages your credit score.
- You must file in federal bankruptcy court and work with a bankruptcy trustee; credit card companies cannot negotiate you out of the process once it begins.
- Bankruptcy costs filing fees and attorney fees upfront, and you must complete credit counseling before filing and financial management courses after.
Chapter 7: Liquidation and debt elimination
Chapter 7 is the bankruptcy route that can wipe out credit card debt entirely. The court sells your non-exempt assets — things you own that the law allows creditors to take — and uses the money to pay creditors. Credit cards are unsecured debt, meaning the card company has no collateral to claim, so they are often paid little or nothing in Chapter 7. If you have no assets to sell, creditors may receive nothing, and your remaining credit card balances are discharged.
To file Chapter 7, you must pass the means test. This test compares your household income to your state's median income for a family your size. If your income is below the median, you pass automatically. If your income is above the median, 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 dismiss your case or convert it to Chapter 13 instead.
Chapter 7 takes three to six months from filing to discharge. During that time, you attend a meeting with the trustee and creditors (often brief and routine), and the trustee investigates your assets. Once the court discharges your case, your credit card debt is gone legally — creditors cannot pursue you for it afterward. However, the bankruptcy stays on your credit report for ten years, and your credit score drops significantly.
Chapter 13: Repayment plans and asset protection
Chapter 13 is used when you have income but cannot pay all your debts in full. Instead of liquidating assets, you propose a repayment plan to the court. The plan lasts three to five years, depending on your income and debts. During those years, you make one monthly payment to the trustee, who distributes it to your creditors according to the plan. Credit cards are typically unsecured debt, so they are paid only after secured debts (like a mortgage or car loan) and priority debts (like taxes or child support).
Chapter 13 lets you keep your home, car, and other assets as long as you stick to the plan. This makes it useful if you are behind on a mortgage or car payment and want to catch up through the plan rather than lose the property. Credit card balances are included in the plan, and you may pay back only a portion of what you owe — the rest is discharged when the plan ends. The court must confirm your plan, which means a judge reviews it to may support it is feasible and treats creditors fairly.
Chapter 13 takes three to five years to complete. You must make every payment on time; missing payments can result in dismissal of your case, which means you lose the protection of the automatic stay and creditors can resume collection. Once you complete the plan, remaining credit card debt is discharged. Like Chapter 7, Chapter 13 stays on your credit report for seven years.
The filing process and what it costs
Filing for bankruptcy begins with a petition submitted to federal bankruptcy court in your district. You must complete two credit counseling courses: one before you file (within 180 days) and one after you file (before discharge). These courses are offered by nonprofit agencies approved by the U.S. Trustee Program and cost between $50 and $150 each. You can take them online or by phone.
The filing fee is set by federal law and does not vary by state or chapter. As of 2024, the fee is $338 for Chapter 7 and $313 for Chapter 13. If you cannot afford the fee, you can request a waiver or pay in installments. Attorney fees vary widely depending on your location and case complexity, but typically range from $1,000 to $3,000 for a straightforward Chapter 7 and $2,500 to $6,000 for Chapter 13. Some attorneys offer payment plans.
Once you file, the automatic stay takes effect when ready. Credit card companies must stop calling, texting, and sending collection letters. If they continue, you can file a motion for contempt. You cannot be sued for credit card debt while the stay is in place. However, the stay does not prevent your employer from wage garnishment if a judgment was already entered before you filed — the bankruptcy trustee handles that separately.
How credit cards are treated in bankruptcy
Credit card debt is unsecured debt, which means the card company has no claim to any specific asset of yours. This is different from a mortgage (secured by your home) or a car loan (secured by the car). Because credit cards are unsecured, they are treated as general unsecured claims in bankruptcy. In Chapter 7, unsecured creditors are paid only after secured creditors and priority creditors, and often receive nothing. In Chapter 13, they are paid according to your repayment plan, which may be a percentage of what you owe.
Some credit card balances may be treated differently. If you took a cash advance within 70 days of filing, or made purchases within 90 days of filing, those amounts may be treated as priority debt in some cases, though this is rare. If you fraudulently obtained a credit card or made charges you knew you could not pay, the card company can object to the discharge of that specific debt, though they must prove fraud, which is difficult.
After bankruptcy, your credit cards are closed by the card companies. You cannot use them during the bankruptcy process. Once your case is discharged, you can explore for new credit, though your credit score will be low and interest rates will be high. Some people rebuild credit by obtaining a secured credit card, which requires a cash deposit that serves as collateral.
Alternatives to bankruptcy for credit card debt
Bankruptcy is not the only option for credit card debt. Debt consolidation combines multiple credit card balances into a single loan with a lower interest rate, reducing your monthly payment. This requires may have access to for the loan based on your credit score and income. Debt settlement involves negotiating with creditors to pay a lump sum less than what you owe, often through a third-party company. Settlement damages your credit but avoids bankruptcy.
Credit counseling through a nonprofit agency can help you create a budget and negotiate with creditors directly. Many agencies offer this for free or low cost. A debt management plan is a formal agreement where the agency negotiates lower interest rates and fixed payment schedules with your creditors, and you make one payment to the agency monthly. This does not erase debt but makes it more manageable.
These alternatives take longer than bankruptcy and do not stop collection calls or lawsuits the way the automatic stay does. However, they damage your credit less severely and cost less upfront. The right choice depends on how much debt you have, your income, whether you own a home or car, and whether creditors are actively suing you.
What happens to your credit after bankruptcy
Bankruptcy has a significant impact on your credit score. Most people see a drop of 130 to 200 points when ready after filing. Your credit report will show the bankruptcy for seven years (Chapter 13) or ten years (Chapter 7) from the filing date. During that time, lenders will see the bankruptcy and may deny you for credit or charge higher interest rates.
However, credit recovery is possible. Your score begins to improve as soon as the bankruptcy is discharged, especially if you make on-time payments on any remaining debts and keep credit card balances low. After two to three years, you may be able to obtain a mortgage or car loan, though at higher rates than someone without bankruptcy. After five to seven years, your score can return to the 600s or 700s if you manage credit responsibly.
Bankruptcy does not erase other financial obligations. Student loans are generally not discharged in bankruptcy unless you prove undue hardship in a separate proceeding. Child support and alimony cannot be discharged. Tax debt can sometimes be discharged if it meets certain conditions, but recent tax debt usually cannot.
Frequently Asked Questions
Can I file for bankruptcy if I have a job?
Yes. Having a job does not disqualify you from bankruptcy. In fact, Chapter 13 requires income to fund a repayment plan. Chapter 7 has income limits (the means test), but many employed people pass because their income is below their state's median or their expenses are high enough to pass the test.
Will bankruptcy stop my credit card company from suing me?
Yes, when ready. The automatic stay halts all collection activity, including lawsuits, the moment you file. If a lawsuit is already in progress, it is paused. If a judgment was already entered, the bankruptcy trustee handles the judgment as part of your case.
What if I have multiple credit cards with different balances?
All of them are included in your bankruptcy filing. You list every credit card debt on your petition. In Chapter 7, all unsecured debts (including all credit cards) are treated the same. In Chapter 13, all credit cards are included in your repayment plan.
Can I keep one credit card and not include it in bankruptcy?
No. You must list all debts and assets in your bankruptcy petition. Hiding a debt is fraud and can result in criminal charges. Once you file, all credit cards are closed by the companies, regardless of whether you want to keep them.
How long does bankruptcy take from start to finish?
Chapter 7 typically takes three to six months. Chapter 13 takes three to five years because you are making payments throughout. The timeline depends on whether creditors object to your case and whether complications arise during the process.