What bankruptcy does and does not do with credit card debt

Bankruptcy is a legal process that can wipe out credit card debt entirely, but it comes with serious costs. When you file, a court freezes your debts and either erases them (Chapter 7) or forces you into a repayment plan (Chapter 13). Credit card companies cannot sue you, garnish your wages, or contact you once the case is filed — that protection is called the automatic stay. But bankruptcy stays on your credit report for 7 to 10 years, makes it harder to rent, get a job, or borrow money, and may require you to sell assets or commit years of income to repayment.

Credit card debt is unsecured debt, which means the card issuer has no claim to your car, house, or other property — they can only sue you. This makes credit card debt one of the easiest types to discharge in bankruptcy. But bankruptcy is not the only way to handle credit card debt, and it is not always the cheapest or fastest way. You should understand the alternatives and the real costs before you file.

Key Takeaways

  • Chapter 7 bankruptcy erases credit card debt but requires you to pass a means test and may force you to sell non-exempt assets.
  • Chapter 13 bankruptcy puts you on a 3- to 5-year repayment plan and lets you keep your assets, but you must have regular income.
  • Filing costs between $300 and $400 in court fees plus attorney fees, which range from $1,000 to $3,000 for Chapter 7 and $2,500 to $6,000 for Chapter 13 depending on your location and case complexity.
  • You must complete credit counseling before filing and a financial management course after, both of which are required by law.
  • Bankruptcy stops collection calls and lawsuits immediately, but alternatives like debt settlement or a payment plan may resolve the debt faster and with less damage to your credit.

Chapter 7 bankruptcy: erasing the debt

Chapter 7 is a liquidation bankruptcy. The court appoints a trustee who sells your non-exempt assets (anything not protected by state law) and uses the money to pay creditors. Whatever is left over is erased. For credit card debt, this is often the best outcome because credit cards are unsecured — there is nothing for the trustee to take unless you own a car outright, have savings, or own a home with equity.

To file Chapter 7, you must pass the means test, which compares your income to the median income in your state for a household your size. If you earn less than the median, you pass automatically. If you earn more, the test subtracts allowed expenses (housing, food, utilities, transportation) from your income. If what remains is below a threshold set by federal law, you still pass. The test changes every six months, so the numbers depend on when you file and where you live.

Chapter 7 takes 3 to 6 months from filing to discharge. During that time, you cannot incur new debt, and the trustee may ask you questions about your finances at a meeting called the 341 meeting (named after the bankruptcy code section). Most Chapter 7 cases are routine and the trustee finds nothing to sell.

Chapter 13 bankruptcy: a repayment plan

Chapter 13 is a reorganization bankruptcy. Instead of erasing debt, it creates a court-approved repayment plan lasting 3 to 5 years. You make one monthly payment to a trustee, who distributes it to your creditors according to the plan. Credit card debt is treated as unsecured nonpriority debt, which means it is paid last, after priority debts like child support and taxes. Often, credit card debt is paid only partially or not at all — whatever is left is erased when the plan ends.

Chapter 13 requires you to have regular income. You do not have to pass a means test, but the court must find that your plan is feasible (you can actually make the payments) and that it is proposed in good faith (you are not hiding assets or trying to cheat creditors). Chapter 13 stops foreclosure and wage garnishment immediately, which is why many people file it when they are behind on a mortgage or car payment.

Chapter 13 takes longer than Chapter 7 — typically 3 to 5 years — but it lets you keep all your assets. It also damages your credit less severely than Chapter 7 because you are repaying something, not walking away from everything.

The cost of filing bankruptcy

Court filing fees are set by federal law: $338 for Chapter 7 and $313 for Chapter 13 as of 2024. You may be able to request a fee waiver if your income is below 150% of the federal poverty line, or you can ask the court to let you pay in installments.

Attorney fees are not set by law and vary widely by location and case complexity. In most parts of the country, Chapter 7 costs $1,000 to $3,000 in attorney fees, and Chapter 13 costs $2,500 to $6,000. Some attorneys charge flat fees for routine cases; others charge hourly rates. If you cannot afford an attorney, you may find free or low-cost help through a legal aid society in your area — search "legal aid" plus your state name to find local providers.

You must also pay for credit counseling before you file and a financial management course after. These are required by law and cost $50 to $150 each, though many nonprofits offer them for free or on a sliding scale. The bankruptcy court provides a list of approved providers.

What happens to your credit and your future borrowing

Bankruptcy stays on your credit report for 7 years (Chapter 13) or 10 years (Chapter 7) from the filing date. During that time, your credit score will be low — typically 300 to 500 immediately after discharge — and you will struggle to get approved for credit cards, car loans, or mortgages at standard rates.

However, credit does recover. Many people rebuild to a score of 600 to 650 within 2 to 3 years after discharge by using a secured credit card (one backed by a cash deposit), making all payments on time, and keeping credit card balances low. Mortgage lenders typically require a 2-year waiting period after Chapter 7 discharge and a 1-year waiting period after Chapter 13 discharge, though some will lend sooner if you have rebuilt your credit and have a large down payment.

Bankruptcy also affects employment and housing. Some employers run credit checks, and bankruptcy may disqualify you from certain jobs (particularly in finance or government). Landlords often check credit and may refuse to rent to you, though some will if you explain the bankruptcy and show stable income since discharge.

Alternatives to bankruptcy for credit card debt

Before you file, consider whether another option might work. Debt settlement involves negotiating with the credit card company to accept a lump sum (often 40% to 60% of what you owe) in exchange for erasing the rest. This damages your credit but less severely than bankruptcy, and it is faster — typically 6 months to 2 years. However, the credit card company is not required to settle, and if you cannot pay the lump sum, settlement does not work.

Debt management plans are structured repayment agreements run by nonprofit credit counseling agencies. The agency negotiates with your creditors to lower interest rates and create a single monthly payment you make to the agency. This takes 3 to 5 years and damages your credit less than bankruptcy, but it requires you to have enough income to make the payments and to close the credit card accounts involved.

Creditor payment plans are informal agreements you negotiate directly with the credit card company. You ask for a lower interest rate or a pause on interest, and you commit to a monthly payment. This is free and fastest, but the credit card company can refuse, and you have no legal protection if they change the terms later.

If you are judgment-proof (you have no income or assets a creditor can take), you may be able to simply wait out the debt. Credit card companies can sue you, but if they win a judgment and you have nothing to garnish or seize, the judgment becomes harder to collect. However, the debt and the judgment stay on your record, and creditors can keep trying to collect for years.

How to file bankruptcy: the basic steps

First, complete a credit counseling course with an agency approved by the U.S. Trustee (the federal office that oversees bankruptcy). You can do this online or in person, and it takes 1 to 2 hours. The agency will give you a certificate you need to file.

Second, gather your financial documents: tax returns for the past 2 years, recent pay stubs, bank statements, a list of all debts with creditor names and amounts, and a list of all assets. You will need to know your monthly income, expenses, and the value of everything you own.

Third, work with a bankruptcy attorney to complete the petition and schedules — the legal documents that describe your income, debts, assets, and expenses. The petition is filed with the bankruptcy court in your district. You can find your district at uscourts.gov.

Fourth, pay the filing fee (or request a waiver) and submit the petition. The court assigns a case number and a trustee. You will receive a notice of the 341 meeting, which is usually scheduled 3 to 6 weeks after filing.

Fifth, attend the 341 meeting. The trustee asks you questions about your petition under oath. Most meetings last 5 to 10 minutes. Bring photo ID and proof of Social Security number.

Sixth, complete the financial management course (required by law) and file proof of completion with the court. After this, the court issues a discharge order erasing your debts (Chapter 7) or confirming your repayment plan (Chapter 13).

What creditors can and cannot do once you file

The moment you file bankruptcy, the automatic stay goes into effect. Creditors must stop collection calls, letters, lawsuits, and wage garnishment. If a creditor violates the stay, you can sue them for damages. However, the stay does not stop child support, alimony, or tax collection — those continue.

Credit card companies will file a claim in your bankruptcy case, but they have no special power. They are treated like any other unsecured creditor. In Chapter 7, they get nothing unless the trustee finds assets to sell. In Chapter 13, they are paid according to the plan, usually after priority creditors.

After your discharge, creditors cannot sue you on the discharged debt. If a creditor tries to collect on a debt that was erased, you can report them to the Federal Trade Commission and sue for violations of the Fair Debt Collection Practices Act.

Frequently Asked Questions

Can I file bankruptcy if I have a cosigner on my credit cards?

Yes, but the cosigner is not protected by your bankruptcy. When you discharge the debt, the credit card company can still pursue the cosigner for full payment. If you want to protect the cosigner, they would need to file bankruptcy too, or you would need to work out a separate agreement with the creditor.

Will bankruptcy erase my student loans?

Student loans are rarely erased in bankruptcy. To discharge them, you must prove undue hardship, which is a high legal standard. You would need to show that you cannot pay and are unlikely to be able to pay in the future. Credit card debt is much easier to discharge than student loans.

How long after bankruptcy can I get a credit card?

You can often get a secured credit card (backed by a cash deposit) within a few months of discharge. Unsecured credit cards typically become available 1 to 2 years after discharge, though interest rates will be high. Some creditors specifically target people rebuilding after bankruptcy.

What if I file bankruptcy and then get sued by a credit card company?

Once your case is filed, the automatic stay prevents new lawsuits. If a creditor sues after the stay is in place, you can file a motion to dismiss the case. If they sue after your discharge, the debt is erased and you can use the discharge as a defense.

Do I have to list all my credit cards when I file bankruptcy?

Yes. You must list every debt, including every credit card, even if you want to keep one and keep paying it. The court requires full disclosure. However, you can ask the court for permission to reaffirm a debt (agree to keep paying it after discharge), though this is rare with credit cards because there is no collateral.