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 have certain debts erased entirely. For credit cards specifically, the outcome depends on which type of bankruptcy you file.
In Chapter 7 bankruptcy, unsecured debts like credit cards are typically discharged — meaning you no longer owe them. The court appoints a trustee who may sell your non-exempt assets to pay creditors, but credit card balances are usually eliminated at the end. In Chapter 13 bankruptcy, you keep your assets but enter a three- to five-year repayment plan where you pay creditors a portion of what you owe, often including reduced credit card balances.
The key difference: Chapter 7 erases the debt; Chapter 13 restructures it. Which one you can file depends on your income, expenses, and assets — not on your choice alone.
Key Takeaways
- Chapter 7 bankruptcy typically erases credit card debt entirely, while Chapter 13 puts you on a repayment plan that may reduce what you owe.
- You must pass the means test, which compares your income to your state's median and your actual living expenses, to file Chapter 7.
- A bankruptcy attorney or credit counselor can review your situation and tell you which chapter fits your circumstances.
- Filing stops collection calls and lawsuits when ready through an automatic stay, but the bankruptcy stays on your credit report for seven to ten years.
- Court filing fees, attorney fees, and mandatory credit counseling courses are costs you will pay regardless of which chapter you choose.
Chapter 7: Erasing credit card balances
Chapter 7 is the faster route if you may have access to. You file paperwork with the federal bankruptcy court in your district, list all your debts and assets, and the court discharges most unsecured debts — including credit cards — within three to six months. You do not enter a repayment plan.
The catch is the means test. The court calculates whether your income is below your state's median for a household your size. If it is, you pass automatically. If it is above the median, the court subtracts allowed living expenses from your income. If what remains is low enough, you still pass. If not, the court may dismiss your case or convert it to Chapter 13.
Even if you pass the means test, the court can still deny discharge if you have filed bankruptcy in the past eight years, or if the court finds you filed in bad faith. Credit cards are unsecured debt, so they are typically discharged unless one creditor objects — which is rare for credit card companies.
Chapter 13: Reorganizing what you owe
Chapter 13 is available to people whose income is too high for Chapter 7, or who want to keep assets the court would otherwise sell. You propose a repayment plan to the court that lasts three to five years. During that time, you make one monthly payment to a court-appointed trustee, who distributes it to your creditors according to the plan.
Credit card debt is unsecured, which means it ranks lower in priority than secured debt (like a mortgage or car loan) and tax debt. In many Chapter 13 plans, credit cards receive little or nothing, and the remaining balance is discharged when you complete the plan. Your plan must show that you are paying creditors at least what they would receive if you filed Chapter 7 instead.
Chapter 13 stops collection calls when ready and lets you catch up on missed mortgage or car payments over the life of the plan. It also protects co-signers on credit cards from being pursued by creditors during the bankruptcy.
The automatic stay: What happens to collection calls
The moment you file bankruptcy — whether Chapter 7 or Chapter 13 — an automatic stay goes into effect. This is a court order that stops creditors from calling, sending bills, filing lawsuits, or starting wage garnishment. Credit card companies must stop collection efforts when ready.
The stay lasts until your case closes. In Chapter 7, that is typically three to six months. In Chapter 13, it lasts the full length of your repayment plan. If a creditor violates the stay, you can sue them for damages.
The stay does not stop all collection activity. Child support, alimony, and criminal fines are not stopped by bankruptcy. Tax liens and foreclosure can proceed in some cases, though bankruptcy can delay them.
Costs and requirements before filing
Filing bankruptcy costs money upfront. Federal court filing fees are set by law and do not vary: $338 for Chapter 7 and $313 for Chapter 13 as of 2024. Attorney fees vary by location and complexity, typically ranging from $1,000 to $3,500 for Chapter 7 and $2,500 to $6,000 for Chapter 13, though some attorneys offer payment plans.
Before you file, you must complete a credit counseling course from an agency approved by the U.S. Trustee's Office. This course costs $50 to $100 and takes about two hours. You receive a certificate you must file with the court. If you cannot afford the fee, you can request a waiver.
After filing, you must complete a second course called the debtor education course before your debts are discharged. This also costs $50 to $100 and covers budgeting and financial management.
How bankruptcy affects your credit and future borrowing
Bankruptcy appears on your credit report for seven years if you file Chapter 13, or ten years if you file Chapter 7. During that time, your credit score drops significantly — often by 100 to 200 points — and lenders view you as higher risk.
However, you can begin rebuilding credit when ready after filing. Many people find it easier to get credit after bankruptcy than while drowning in debt, because the bankruptcy eliminates the debt and the automatic stay stops the damage from collection activity. Secured credit cards, credit-builder loans, and becoming an authorized user on someone else's account are common first steps.
Some debts are not erased by bankruptcy. Student loans, child support, alimony, recent tax debt, and court fines typically survive bankruptcy. Credit card debt, medical bills, and personal loans are usually discharged in Chapter 7 or reduced in Chapter 13.
Alternatives to bankruptcy for credit card debt
Bankruptcy is not the only option. Debt consolidation combines multiple credit card balances into a single loan, usually at a lower interest rate, which you repay over time. Debt settlement involves negotiating with creditors to accept less than you owe, though this damages your credit and may trigger a lawsuit before settlement is reached.
A debt management plan through a nonprofit credit counselor can lower your interest rates and consolidate payments without filing bankruptcy. You work with a counselor to contact creditors and negotiate new terms, then make one monthly payment to the counselor, who distributes it to creditors. This appears on your credit report but does not carry the same long-term impact as bankruptcy.
If your income is very low, you may also explore whether you are judgment-proof — meaning creditors cannot collect from you even if they win a lawsuit — though this does not erase the debt and does not stop collection attempts.
Finding a bankruptcy attorney and getting started
A bankruptcy attorney reviews your income, debts, and assets, tells you which chapter you can file, and handles the paperwork and court process. Many offer free initial consultations. You can find attorneys through your state bar association, the National Association of Consumer Bankruptcy Attorneys, or a local legal aid office if you cannot afford private counsel.
Before meeting an attorney, gather recent tax returns, pay stubs, bank statements, and a list of all debts with balances and creditor contact information. This speeds up the consultation and gives the attorney what they need to assess your situation.
If you cannot afford an attorney, legal aid offices in your area may provide free or low-cost bankruptcy help. You can search for local legal aid at lawhelp.org or call 211 to be referred to services in your area.
Frequently Asked Questions
Will bankruptcy erase all my credit card debt?
Chapter 7 typically erases all unsecured credit card debt, with rare exceptions. Chapter 13 may erase some or all of it depending on your repayment plan and income. Secured credit cards (where you put down a deposit) are treated differently and may not be discharged. An attorney can tell you what will happen to your specific cards.
Can I keep one credit card if I file bankruptcy?
You can keep a credit card only if the issuer does not close it. Most card companies close accounts when you file bankruptcy. Some cards issued by banks where you have other accounts may remain open. You cannot selectively discharge one card and pay another — you must list all debts in your bankruptcy filing.
How long does bankruptcy take?
Chapter 7 typically closes in three to six months. Chapter 13 lasts three to five years, depending on your plan. The timeline depends on whether creditors object, whether you have assets to sell, and how quickly you complete required courses.
Will I lose my house or car in bankruptcy?
Not necessarily. Chapter 7 lets you keep a primary home and vehicle if you are current on payments and the equity is below your state's exemption limits. Chapter 13 lets you keep both and catch up on missed payments through your repayment plan. An attorney can tell you what you will keep based on your state's laws.
Can I file bankruptcy if I have a co-signer on my credit cards?
Yes, but the co-signer remains liable for the debt unless they also file bankruptcy. In Chapter 13, the automatic stay protects co-signers from collection during your repayment plan. In Chapter 7, the co-signer can still be pursued after your debt is discharged.