What bankruptcy does to credit card debt
Bankruptcy is a legal process that lets you either reorganize your debts under a court-approved plan or discharge them entirely, depending on which chapter you file. For credit card debt specifically, bankruptcy can eliminate what you owe — but it comes with serious costs to your credit report and your ability to borrow for years afterward.
The two most common types for individuals are Chapter 7 and Chapter 13. Chapter 7 wipes out unsecured debts like credit cards, but you may have to sell assets to pay creditors. Chapter 13 sets up a repayment plan over three to five years, during which you pay back some or all of what you owe. Both appear on your credit report for seven to ten years and will lower your credit score significantly.
Before filing, you must complete credit counseling with an agency approved by the U.S. Trustee Program — this is a legal requirement, not optional. The counselor will review your budget and explore whether bankruptcy is actually the right move, or whether debt management, negotiation, or other options make more sense for your situation.
Key Takeaways
- Chapter 7 bankruptcy can eliminate credit card debt entirely, but Chapter 13 sets up a repayment plan over three to five years instead.
- You must complete credit counseling with a U.S. Trustee-approved agency before filing, and the counselor may help you see alternatives that cost less.
- Filing costs between $300 and $400 in court fees plus attorney fees, which often run $1,500 to $3,000 or more depending on complexity.
- Bankruptcy will lower your credit score by 130 to 200 points or more and remain on your report for seven to ten years.
- You cannot file again for a certain period — eight years between Chapter 7 filings, or two to three years between other combinations.
Chapter 7 bankruptcy and credit card elimination
Chapter 7 is called "liquidation" bankruptcy because the court appoints a trustee to sell your non-exempt assets and use the money to pay creditors. Credit cards are unsecured debt, meaning they have no collateral backing them, so they are typically wiped out in full once the trustee has distributed available funds.
However, Chapter 7 is only available if your income falls below your state's median income for your household size. If you earn more, you must take a "means test" that looks at your expenses and determines whether you have enough leftover income to pay back at least some debt. If you do, the court will push you toward Chapter 13 instead.
Even if you pass the means test, you may lose property. Your home, car, retirement accounts, and some personal items are usually protected by state exemption laws, but other assets — savings accounts, investments, jewelry — may be sold. The rules vary significantly by state, so an attorney in your area can tell you what you would actually lose.
Chapter 13 and the three-to-five-year repayment plan
Chapter 13 is called "reorganization" bankruptcy because instead of liquidating assets, you propose a repayment plan to the court. You pay a trustee a set amount each month for three to five years, and the trustee distributes that money to your creditors according to the plan.
Credit card debt is typically treated as "unsecured" in Chapter 13, which means it is paid after secured debts like mortgages and car loans. Depending on your income and expenses, you might pay back 0 percent of your credit card debt, or you might pay back 100 percent — the court decides based on what you can afford. Many people pay back only a fraction.
The advantage of Chapter 13 is that you keep your assets and your home. The disadvantage is that you are locked into a payment plan for years, and if you miss payments or your income changes significantly, the trustee can ask the court to dismiss the case or convert it to Chapter 7.
The cost of filing and what to expect from an attorney
Court filing fees are set by federal law and currently run $335 for Chapter 7 and $310 for Chapter 13. You also pay fees to the credit counseling agency (usually $50 to $100) and to take the required financial management course after filing (usually $50 to $100).
Attorney fees are not set by law and vary widely. A Chapter 7 case typically costs $1,500 to $3,000 in attorney fees, while Chapter 13 often costs $2,500 to $4,000 or more because the attorney must draft and manage a repayment plan. Some attorneys offer payment plans or reduced fees for low-income filers. Legal aid societies in your area may handle bankruptcy for free or at low cost if you cannot afford private counsel.
You can file without an attorney, but bankruptcy law is complex and mistakes can cost you — you might lose assets you could have protected, or the court might dismiss your case. Most people benefit from at least a consultation with an attorney to understand the real costs and benefits in their specific situation.
How bankruptcy affects your credit score and borrowing
A bankruptcy filing will lower your credit score by 130 to 200 points or more, depending on your starting score. The impact is largest when ready after filing and gradually lessens over time, but the bankruptcy itself remains on your credit report for seven years (Chapter 7) or ten years (Chapter 13).
During and after bankruptcy, you will find it harder and more expensive to borrow. Credit card issuers may deny you outright for the first year or two. After that, you may be offered cards, but with high interest rates and low credit limits. Auto loans and mortgages will carry higher rates. Some employers, landlords, and insurance companies also check credit reports and may view bankruptcy negatively.
However, your credit can recover. Many people rebuild their score to 650 or higher within two to three years of filing by using a secured credit card responsibly, paying all bills on time, and keeping credit card balances low. The longer you go without bankruptcy, the less it matters — after seven to ten years, it falls off your report entirely.
Alternatives to bankruptcy you should explore first
Before filing, talk to a credit counselor about whether other options might work. Debt consolidation combines multiple credit card balances into a single loan, usually with a lower interest rate, so you pay less over time. Debt management plans work with your creditors to lower interest rates and set up a single monthly payment. Neither appears on your credit report as harshly as bankruptcy, and both preserve your ability to borrow sooner.
Credit card issuers sometimes offer hardship programs if you call and explain financial difficulty. You may be able to lower your interest rate, pause payments temporarily, or reduce your balance. This does not eliminate the debt, but it buys time and costs nothing.
Negotiating a settlement — offering a lump sum to pay off a card for less than you owe — is another option, though it does damage your credit and the forgiven amount may be taxable income. A credit counselor can help you understand which option fits your situation and what the real trade-offs are.
The timeline from filing to discharge
Chapter 7 typically takes four to six months from filing to discharge. You file your petition and financial documents with the court, attend a meeting of creditors (usually brief and routine), and wait for the trustee to liquidate assets and distribute funds. Once the court issues a discharge order, your credit card debt is gone.
Chapter 13 takes longer because you are in a repayment plan. You file your petition and proposed plan, attend a confirmation hearing where the court approves the plan, and then make monthly payments for three to five years. Only after you complete all payments does the court issue a discharge.
During this time, creditors must stop collection calls and lawsuits — the automatic stay, a court order that takes effect the moment you file, prevents them from pursuing you. However, you must stay current on any debts that are not being discharged, like a mortgage or car loan, or you could lose the home or car.
Restrictions on filing again
Once you file bankruptcy, you cannot file again when ready. The waiting periods depend on what you filed and what you want to file next. You must wait eight years between Chapter 7 filings, four years between Chapter 13 filings, and two years if you want to go from Chapter 13 to Chapter 7 or vice versa.
These restrictions exist to prevent people from using bankruptcy repeatedly to escape debt. If you are considering bankruptcy, understand that you are using up a legal tool that you cannot use again for years, so make sure it is actually the right choice for your situation.
Frequently Asked Questions
Will bankruptcy eliminate all my credit card debt?
Chapter 7 can eliminate credit card debt entirely if you pass the means test and the court approves. Chapter 13 may eliminate some or all of it depending on your income and expenses — the court decides what you can afford to pay back over the plan period.
Can I keep my house or car if I file bankruptcy?
In Chapter 7, you can usually keep your home and car if you are current on payments and they are protected by your state's exemption laws. In Chapter 13, you keep all assets but must stay current on mortgage and car payments throughout the plan. If you fall behind, you could lose them.
How much does bankruptcy cost?
Court fees are $310 to $335, plus credit counseling and financial management courses ($100 to $200 total). Attorney fees vary widely — typically $1,500 to $3,000 for Chapter 7 and $2,500 to $4,000 for Chapter 13. Legal aid may offer free or low-cost representation if you cannot afford private counsel.
Will I ever be able to get a credit card again after bankruptcy?
Yes. Many people are offered credit cards within one to two years of discharge, though usually with high interest rates and low limits. Using a secured credit card responsibly can help you rebuild your score faster and show future lenders you are managing credit well.
What happens if I cannot afford my Chapter 13 payment?
Contact your trustee when ready — missing payments can result in dismissal of your case or conversion to Chapter 7. The trustee may be able to modify your plan if your income has genuinely changed, but you must ask before you miss payments, not after.