What bankruptcy does and does not do for credit card debt
Bankruptcy is a court process that either erases certain debts or creates a repayment plan you can actually afford. For credit card debt specifically, Chapter 7 bankruptcy can wipe out what you owe entirely, while Chapter 13 bankruptcy restructures it into a payment plan over three to five years. Neither option is automatic — you file a petition with the federal court in your district, provide detailed financial records, and a trustee (a court-appointed official) reviews your case.
The catch: bankruptcy damages your credit score for years, costs money upfront, and requires you to meet strict income and asset rules. It is not a reset button you press when you are tired of paying. It is a legal tool for people whose debt has become genuinely unmanageable — usually when minimum payments alone consume most of your income, or when you have no realistic way to pay what you owe within a reasonable timeframe.
Before filing, you must complete credit counseling through an agency approved by the U.S. Trustee Program. This is not optional and not a formality — the counselor will review your budget, discuss alternatives like debt consolidation or hardship programs, and issue a certificate you need to submit with your petition. Many people discover during this session that bankruptcy is not their best path.
Key Takeaways
- Chapter 7 bankruptcy erases credit card debt but requires you to pass a means test showing your income is below your state's median; Chapter 13 restructures debt into a three- to five-year payment plan if you have regular income.
- You must complete credit counseling from a U.S. Trustee-approved agency before filing, and the counselor may identify cheaper alternatives like debt management plans.
- Filing costs between $300 and $400 in court fees plus attorney fees, which typically range from $1,000 to $3,000 for Chapter 7 and $2,500 to $6,000 for Chapter 13, though some attorneys offer payment plans.
- Bankruptcy remains on your credit report for seven to ten years and will lower your score significantly, but you can begin rebuilding credit when ready after discharge.
- The process takes three to six months for Chapter 7 and three to five years for Chapter 13, during which a trustee oversees your finances and creditors cannot pursue collection actions.
Chapter 7 versus Chapter 13: which one applies to you
The type of bankruptcy you can file depends primarily on your income. Chapter 7 requires you to pass the means test, a calculation that compares your household income to your state's median income for a family your size. 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 federal law, you still pass. The point is to reserve Chapter 7 for people with genuinely low income or very high expenses.
If you fail the means test, you must file Chapter 13 instead. Chapter 13 does not erase debt; it creates a repayment plan. You propose a plan to the court showing how much you can pay each month over three to five years, and creditors must accept it. The plan covers all your debts — credit cards, medical bills, car loans, back taxes — though some debts (like child support) get priority. You make one payment to the trustee each month, and the trustee distributes it to your creditors according to the plan.
Chapter 13 also has an income requirement: you must have regular income (a job, disability benefits, retirement income) and your debts cannot exceed certain limits set by federal law, which change annually. For 2024, unsecured debt (credit cards, medical bills) cannot exceed roughly $465,000 and secured debt (car loans, mortgages) cannot exceed roughly $1,395,000. If your debts are above these limits, you cannot file Chapter 13.
The credit counseling requirement and what it covers
Before you file any bankruptcy petition, you must complete a credit counseling session with an agency on the U.S. Trustee Program's approved list. You can find the list at justice.gov/ust — search by state and district. The session is usually one hour, conducted by phone or video, and costs between $50 and $150. Some agencies offer it free or on a sliding scale if you cannot afford the fee.
The counselor will review your budget, discuss your debts and income, and explore alternatives. These might include a debt management plan (where a nonprofit negotiates lower interest rates with your creditors and you make one payment to the nonprofit), a hardship program through your credit card issuer, or a personal loan to consolidate the debt. The counselor is not trying to talk you out of bankruptcy — they are required to present options. Many people find that a debt management plan, which costs far less and damages credit less severely, solves their problem.
At the end of the session, the counselor issues a certificate. You must attach this certificate to your bankruptcy petition when you file. If you do not complete counseling, the court will dismiss your case. The counseling is separate from the financial management course you take after filing (which is required for discharge), so plan for two separate sessions.
Gathering documents and calculating your numbers
Bankruptcy requires you to disclose your complete financial picture to the court. You will need to gather: two months of recent pay stubs, two months of recent bank statements, a list of all assets (car, house, retirement accounts, jewelry), a list of all debts with creditor names and amounts owed, proof of homeownership or rental agreement, and tax returns from the past two years. If you are self-employed, bring profit-and-loss statements. If you receive benefits, bring the award letter.
You will also calculate your income using the means test form (Form 106Sum for Chapter 7, or Form 106Sum and Form 106Dec for Chapter 13). These forms are complex — they use six-month average income, explore state-specific expense allowances, and include line items most people have never heard of. This is where many people hire an attorney, because a mistake can result in dismissal or conversion to a different chapter. If you cannot afford an attorney, legal aid societies in most counties offer free or low-cost help; search your state bar association's website for the local legal aid office.
The court also requires you to list every debt, every asset, and every source of income. Omitting a debt does not erase it — it straightforward means that debt survives the bankruptcy. Omitting an asset can result in fraud charges. Accuracy matters more than completeness; if you are unsure about a value, estimate and note that it is an estimate.
Filing the petition and what happens next
You file your petition electronically through the federal bankruptcy court in your district. The court website lists the filing fee (currently $338 for Chapter 7, $313 for Chapter 13) and the required forms. If you cannot afford the fee, you can request a waiver or pay in installments. You submit the petition, all schedules, the means test, your credit counseling certificate, and a cover sheet. Once filed, an automatic stay goes into effect when ready — creditors must stop calling, stop sending bills, and stop collection actions. This is one of bankruptcy's most powerful features.
Within 14 days of filing, the court assigns a trustee and schedules a meeting of creditors, also called the 341 meeting. You attend this meeting (usually by video conference) and answer questions from the trustee and any creditors who show up. The trustee will ask about your income, your debts, your assets, and whether you have any non-exempt property they can sell to pay creditors. Most Chapter 7 cases have no assets to liquidate, so the meeting is brief. Most creditors do not attend.
For Chapter 7, the process typically concludes within three to six months. The court issues a discharge order, which is a legal document stating that your credit card debt (and other unsecured debts) is erased. You no longer owe it. For Chapter 13, you begin making payments to the trustee when ready after the court confirms your plan, usually within two to three months of filing. You make payments for the full three to five years, and at the end, remaining unsecured debt is discharged.
Costs: court fees, attorney fees, and counseling
Bankruptcy has several costs. The court filing fee is $338 for Chapter 7 and $313 for Chapter 13. Credit counseling costs $50 to $150. The financial management course (required after filing) costs $15 to $50. If you hire an attorney, fees vary widely by location and complexity, but typically range from $1,000 to $3,000 for Chapter 7 and $2,500 to $6,000 for Chapter 13. Some attorneys offer payment plans, allowing you to pay in installments before and after filing.
If you cannot afford an attorney, legal aid societies represent low-income people free of charge. To find your local legal aid office, visit lawhelp.org or search "[your state] legal aid." If you earn above legal aid's income limit but still cannot afford an attorney, some bankruptcy courts have pro bono programs where volunteer attorneys take cases free. Ask the court clerk.
The total cost of Chapter 7 with an attorney is typically $1,500 to $3,500. The total cost of Chapter 13 with an attorney is typically $3,000 to $6,500. These are real expenses, but many people find that the money they save by erasing or restructuring debt (especially if they were paying $300 to $500 per month in minimums) recovers the cost within a year or two.
How bankruptcy affects your credit and what comes after
Bankruptcy will lower your credit score significantly — typically by 130 to 200 points, depending on your score before filing. A Chapter 7 bankruptcy remains on your credit report for ten years from the filing date. A Chapter 13 bankruptcy remains for seven years from the filing date. During this time, lenders will see the bankruptcy and many will deny you credit, charge higher interest rates, or require a deposit.
However, you can begin rebuilding credit when ready after discharge. Many people open a secured credit card (where you deposit cash as collateral) within a few months of discharge, use it for small purchases, and pay it off in full each month. After 12 to 24 months of on-time payments, you can graduate to an unsecured card. Within three to five years of discharge, many people have credit scores in the 600s or 700s — not excellent, but good enough to borrow at reasonable rates.
After bankruptcy, you will also be required to complete a financial management course before the court issues your discharge order. This is a separate requirement from credit counseling and typically costs $15 to $50. The course covers budgeting, credit management, and debt prevention. It is usually offered online and takes two to four hours.
Alternatives to bankruptcy you should consider first
Before filing, explore whether a debt management plan, hardship program, or settlement might solve your problem more cheaply. A debt management plan is offered by nonprofit credit counseling agencies; they negotiate with your creditors to lower interest rates and create a single monthly payment you can afford. The plan typically takes three to five years, costs $25 to $50 per month in agency fees, and damages your credit less severely than bankruptcy. The catch: creditors are not required to participate, and some will not.
Many credit card issuers offer hardship programs if you call and explain your situation. These programs may lower your interest rate, waive fees, or reduce your minimum payment temporarily. They do not erase debt, but they can make it manageable. Ask specifically for the hardship department, not customer service.
Debt settlement involves negotiating with creditors to accept a lump sum payment (often 40 to 60 percent of what you owe) in exchange for erasing the rest. This damages your credit and can trigger tax consequences, but it avoids bankruptcy. Settlement typically takes one to three years and costs nothing upfront, though some people hire a settlement company to negotiate on their behalf (which costs 15 to 25 percent of the amount settled).
Frequently Asked Questions
Will bankruptcy erase all my credit card debt?
Chapter 7 erases most credit card debt, but not all. Debts you incurred through fraud, child support, alimony, recent taxes, and student loans survive bankruptcy. Chapter 13 does not erase debt; it restructures it into a payment plan. If you have only credit card debt and pass the means test, Chapter 7 will erase it.
Can I keep my house or car if I file bankruptcy?
Yes, if you are current on payments and the equity is protected by exemptions. Each state has exemption laws that protect a certain amount of home equity and car equity from the trustee. If your equity exceeds the exemption, the trustee can sell the property. In Chapter 13, you can catch up on missed payments through your repayment plan, so you can keep the property even if you are behind.
How long does bankruptcy take?
Chapter 7 typically takes three to six months from filing to discharge. Chapter 13 takes the full length of your plan — three to five years — plus a few months for court approval. During this time, creditors cannot pursue collection actions against you.
Will I ever be able to borrow money again after bankruptcy?
Yes. Many people get credit within months of discharge, though at higher interest rates. Within three to five years, with on-time payments, you can rebuild to a decent credit score. You can also refinance a mortgage or car loan after two to three years of post-bankruptcy on-time payments.
What if I have a co-signer on my credit card debt?
Bankruptcy erases your obligation to pay, but the co-signer remains liable. The creditor can pursue the co-signer for the full amount. If you want to protect the co-signer, you may need to explore alternatives like a debt management plan or settlement instead of bankruptcy.