What bankruptcy does and does not do for credit card debt
Bankruptcy is a legal process that stops collection calls, freezes lawsuits, and can erase credit card debt entirely — but it is not a quick fix and it damages your credit score for years. The two types available to individuals are Chapter 7, which wipes out unsecured debt like credit cards in exchange for liquidating assets, and Chapter 13, which restructures your debt into a repayment plan over three to five years. Neither one is free: you will pay court filing fees (currently $338 for Chapter 7, $313 for Chapter 13) plus attorney fees, which typically range from $1,500 to $3,500 depending on your case complexity and location.
Before filing, you must complete a credit counseling course from a nonprofit agency approved by the U.S. Trustee Program — this is a legal requirement, not optional. The course costs $10 to $50 and takes about an hour. You will also need to pass a means test, which compares your income to your state's median income to determine which chapter you are may be able to access for. If your income is below the median, you can file Chapter 7. If it is above, you may be required to file Chapter 13 instead.
Key Takeaways
- Chapter 7 bankruptcy erases credit card debt but requires you to complete credit counseling and pass a means test based on your state's median income.
- Chapter 13 bankruptcy restructures your debt into a three- to five-year repayment plan and is often required if your income exceeds your state's median.
- You must hire a bankruptcy attorney in most cases, as filing without one is legally complex and courts rarely allow self-representation.
- The bankruptcy process takes four to six months for Chapter 7 and three to five years for Chapter 13, during which collection activity stops when ready.
- A bankruptcy filing remains on your credit report for seven to ten years and will lower your credit score significantly, though you can rebuild it over time.
The means test and which chapter you can file
The means test is a calculation that determines whether your income qualifies you for Chapter 7 or forces you into Chapter 13. It uses your household income from the past six months and compares it to the median income for your state and family size. If you earn less than the median, you pass the means test and can file Chapter 7. If you earn more, the test calculates your disposable income — what remains after subtracting allowed living expenses — and if that number is high enough, you must file Chapter 13 instead.
The allowed living expenses are set by the IRS and vary by state and family size. They cover housing, utilities, food, transportation, and other necessities, but they are often lower than what you actually spend. This means you can fail the means test even if you feel financially squeezed. Your bankruptcy attorney will calculate this for you during the initial consultation, which is usually free. Do not skip this step — filing under the wrong chapter wastes money and can result in dismissal.
Hiring a bankruptcy attorney and what they handle
You can file bankruptcy without an attorney, but courts strongly discourage it and the process is difficult enough that most people end up hiring one anyway. An attorney prepares all required documents, represents you in court, negotiates with creditors, and handles the trustee's questions. They also know local court rules and can spot issues that would derail a self-filed case.
When you meet with an attorney for a consultation, bring documentation: recent pay stubs, tax returns, bank statements, a list of all debts with creditor names and amounts, and proof of any assets (home, car, retirement accounts). The attorney will review your situation, tell you which chapter fits your circumstances, and quote a fee. Many attorneys offer payment plans, and some nonprofits offer reduced-fee representation if your income is very low. Ask about this during the consultation.
The credit counseling requirement and timing
Before you file, you must complete a credit counseling course from a nonprofit agency on the U.S. Trustee's approved list. You can find approved agencies at justice.gov/ust — search by state. The course covers budgeting, debt management, and alternatives to bankruptcy. It is offered online, by phone, or in person, takes about an hour, and costs $10 to $50. You will receive a certificate of completion, which you must file with the court as part of your bankruptcy petition.
After your case is filed, you must also complete a debtor education course before your debt is discharged. This is a separate requirement from the pre-filing counseling. Both are mandatory, and skipping either one can result in dismissal of your case. Your attorney will remind you of the important date, but the responsibility is yours.
What happens after you file: the automatic stay and the trustee
The moment you file, an automatic stay goes into effect. This is a court order that stops creditors from calling, sending letters, filing lawsuits, or pursuing wage garnishment. Collection activity halts when ready, even if you have an active judgment against you. The stay lasts for the entire bankruptcy process — four to six months for Chapter 7, three to five years for Chapter 13.
A bankruptcy trustee is appointed to your case. For Chapter 7, the trustee's job is to liquidate your nonexempt assets and distribute the proceeds to creditors. For Chapter 13, the trustee collects your monthly plan payment and distributes it to creditors according to the court-approved repayment plan. You will attend a meeting of creditors, also called a 341 meeting, where the trustee asks questions about your finances and debts. Creditors rarely attend, and the meeting usually lasts 10 to 15 minutes. Your attorney will prepare you for this.
Exemptions: what assets you keep in Chapter 7
Bankruptcy law allows you to keep certain assets — your home, car, retirement accounts, and personal belongings — up to limits set by your state. These are called exemptions. Each state has its own exemption amounts, and some states let you choose between state exemptions and federal exemptions. Your home equity, car equity, and retirement savings are usually protected up to a certain dollar amount, which varies widely by state.
For example, some states exempt $25,000 of home equity, others exempt $100,000 or more, and a few exempt unlimited home equity. The same variation applies to cars, retirement accounts, and personal property. Your attorney will calculate your exemptions and tell you what you stand to lose. In many Chapter 7 cases, the debtor has so few nonexempt assets that the trustee does not liquidate anything — the case is called a no-asset case. This is common when people filing for bankruptcy have little equity in their home or car and minimal savings.
How Chapter 13 repayment plans work
Chapter 13 requires you to propose a repayment plan that lasts three to five years. The plan must show that you will pay back a portion of your debt from your disposable income each month. Unsecured debt like credit cards may be paid back at 0 to 100 percent depending on your income and assets — the court decides what is fair. Secured debt like a car loan or mortgage must be paid in full or you lose the asset.
Your attorney drafts the plan and files it with the court. Creditors have a chance to object, and the court holds a confirmation hearing where the judge approves or rejects the plan. If approved, you make monthly payments to the trustee, who distributes them to creditors according to the plan. If you miss payments, the trustee can ask the court to dismiss your case, which means you lose the bankruptcy protection and creditors can resume collection. If you complete the plan successfully, any remaining unsecured debt is discharged.
The credit score impact and rebuilding after discharge
A bankruptcy filing will lower your credit score by 100 to 200 points or more, depending on your starting score. The damage is when ready and severe. However, the impact lessens over time. After two years, many people can rebuild their score to the 600s. After four to five years, scores in the 700s are possible. After seven years, the bankruptcy falls off your credit report entirely (ten years for Chapter 13 in some cases).
To rebuild, you will need to establish new credit. This means getting a secured credit card, becoming an authorized user on someone else's account, or taking out a credit-builder loan from a credit union. Pay all bills on time, keep credit card balances low, and avoid taking on new debt. Your bankruptcy attorney or a nonprofit credit counselor can point you toward resources for rebuilding. Many people who file bankruptcy end up with better financial habits and stronger credit scores five years later than they had before filing.
Frequently Asked Questions
Can I file bankruptcy if I am still working and earning income?
Yes. Your income does not disqualify you from bankruptcy — the means test determines which chapter you file under, not whether you can file at all. Many people filing bankruptcy are employed. If your income is above your state's median, you will likely file Chapter 13 instead of Chapter 7, but you can still file.
Will bankruptcy stop my credit card company from suing me?
Yes. The automatic stay stops all collection activity, including lawsuits, the moment you file. If a lawsuit is already in progress, the bankruptcy court takes over and the credit card company's lawsuit is paused. The debt is then handled through the bankruptcy process instead.
What debts cannot be erased in bankruptcy?
Student loans, child support, alimony, recent taxes, and criminal fines cannot be discharged in bankruptcy. Credit card debt, medical bills, and personal loans can be. Your attorney will review your specific debts and tell you which ones survive bankruptcy.
How long does bankruptcy stay on my credit report?
Chapter 7 bankruptcy remains on your credit report for ten years from the filing date. Chapter 13 remains for seven years. After that time, it is removed automatically. You can rebuild your credit before it falls off, and many lenders will work with you after three to five years if you have shown responsible behavior.
Can I file bankruptcy twice?
Yes, but there are waiting periods. You must wait eight years between Chapter 7 filings, four years between Chapter 13 filings, and two years if you file Chapter 7 after Chapter 13. These waiting periods are measured from the discharge date of your previous case, not the filing date.