Should I File for Bankruptcy for Credit Card Debt?

Can Bankruptcy Erase Your Credit Card Debt?

Yes, filing bankruptcy can erase your credit card debt and help you get a financial fresh start. The two types of bankruptcy that can help to clear your credit card debt are Chapter 7 and Chapter 13.

In Chapter 7 bankruptcy, eligible debts — including credit card debt — can be erased in six months or less, and you don’t have to repay your eligible unsecured debts.

If you file Chapter 13 bankruptcy, you’ll be required to repay a portion of your debts through a 3–5-year repayment plan. If you complete the repayment plan and meet all the requirements, any remaining credit card debt and other unsecured debt will be wiped out at the end of the plan.

How Chapter 7 Bankruptcy Can Help You Erase Credit Card Debt

Chapter 7 bankruptcy can help you erase credit card debt by permanently eliminating your responsibility to repay it. It has other important benefits, too. For example, as soon as you file your bankruptcy petition, an automatic stay goes into effect. This stops creditors from calling, sending collection letters, or filing lawsuits against you. 

In addition to credit card debt, Chapter 7 can also discharge other unsecured debts. Here’s a quick breakdown of what types of debt you can and can’t discharge in Chapter 7.

Examples of debts that are eligible for a discharge in Chapter 7 include:

• Credit card debts

• Personal loans

• Utility bills

• Old rent or lease payments

• Medical bills and debts

• Federal student loans (though you must prove undue hardship and fill out additional paperwork for an adversary proceeding)

Examples of debts that are not eligible for a discharge in Chapter 7 include:

• Alimony

• Child support 

• Private student loans

• Newer tax debt

• Legal judgments 

Another benefit of Chapter 7 is that it has a high success rate. Most Chapter 7 filers successfully receive a bankruptcy discharge.^[1]

Does Chapter 7 Bankruptcy Erase All Credit Card Debts?

Usually, yes, Chapter 7 erases all credit card debt. But in rare cases, some credit card debt may not be dischargeable. In these cases, a creditor may file an objection to the discharge with the bankruptcy court. Here are two instances in which that may happen.

Credit Card Debt From Luxury Goods

If you use your credit cards to charge $675 or more for luxury goods or services within 90 days of filing your Chapter 7 petition, the court may find that the credit card debt is non-dischargeable. Luxury goods and services (jewelry, art, etc.) are known as non-exempt property. These items can be sold by your bankruptcy trustee to pay your creditors.

Credit Card Debt From Paying for Non-Dischargeable Debts

If you used your credit card to try to pay for non-dischargeable debts, that debt is not likely to get erased. For instance, if you use your credit card to pay child support, alimony, back taxes, or student loans, the credit card company may object to your discharge.

Do I Qualify To File Chapter 7 Bankruptcy?

If your average income is below the median income for your state and you don’t have enough disposable income, you most likely qualify to file for Chapter 7 bankruptcy. You can take the means test to check your eligibility. 

If you make more than the median income for your state or have a certain amount of disposable income, you may still qualify to file a Chapter 7 bankruptcy case. You’ll need to go through the full means test to find out. This usually requires professional legal help.

Can I File Chapter 7 Bankruptcy Without an Attorney?

Yes, many people successfully file Chapter 7 bankruptcy without an attorney. If you have a simple Chapter 7 case, you may be eligible to use Upsolve’s free filing tool. Upsolve has helped over 13,000 people get rid of almost $700 million in debt.

If you have a more complex case or you simply want some personalized legal advice for your case, you may need to hire a bankruptcy attorney. Upsolve can connect you with a bankruptcy lawyer near you for a free consultation.

Filing Chapter 13 Bankruptcy To Ease Credit Card Debt 

If you don't qualify for debt relief under Chapter 7, you might consider filing for Chapter 13 bankruptcy.

Instead of erasing your debts outright, Chapter 13 bankruptcy sets you up on a repayment plan where you make monthly payments based on your income. In most cases, you will pay a small percentage of your overall debt, and once you complete your payment plan, the remaining credit card debt is discharged. Chapter 13 can also help you catch up on secured debt payments, like a home mortgage or a car loan.

Chapter 13 bankruptcy can only help if you complete the full repayment plan. Because these plans last 3–5 years, Chapter 13 has a lower success rate than Chapter 7.

Should You File Bankruptcy for Credit Card Debt?

Here are some questions to ask yourself as you explore whether you should file bankruptcy to deal with your credit card debt:

• What is my total debt? (Add up all your credit card balances)

• What are the interest rates on my credit cards?

• What is my total income right now? Do I think that will change in the near future?

• How much disposable income do I have each month, and where is it going currently?

• What other debt do I have? (Consider student loans, personal loans, medical bills, past-due mortgage or rent payments, car loans, payday loans, lines of credit, etc.)

You can use a credit card payoff calculator to get a sense of how long it will take for you to pay off your debts. You can also take Upsolve’s free debt screener to see what debt relief options you’re eligible for.

What Other Debt Relief Options Can Help You Deal With Credit Card Debt?

Bankruptcy is an effective way to get rid of credit card debt, but it’s not your only option. If you aren’t sure which debt relief option is right for you, you can take Upsolve’s free debt screener to see what you’re eligible for. You can also schedule a free consultation with a nonprofit credit counselor who can provide personalized guidance based on your financial situation.

Bankruptcy alternatives include:

• Budgeting and DIY debt repayment strategies like the debt snowball method, which can help you organize your finances and repay credit card bills if you have enough income 

• Debt management plans, which streamline your debt, lower your interest rates, and are overseen by credit counselors

• Debt consolidation, which rolls your debt into a single personal loan, hopefully with a lower interest rate and manageable monthly payment

• Debt settlement, which allows you to repay only a portion of the debt and have the rest forgiven

What Happens if I Can’t Catch Up With My Credit Card Payments?

If you can’t catch up with your credit card payment, you may face several different consequences, including:

• Late fees

• Interest rate hikes

• Collection calls or notices from the creditor

• A ding to your credit score as late payments appear on your credit report

If past-due payments persist, the consequences can get more severe, and the credit card company may turn your account over to a debt collection agency or file a debt collection lawsuit. If you get sued and lose the case, the debt collector can get a wage garnishment or bank levy court order.

Many people worry that filing bankruptcy will damage their credit score. While your credit score will initially take a hit if you file bankruptcy, it is possible to repair it afterward. You should be aware that missing credit card (or any other) payments will also cause damage to your credit score. And if you aren’t able to catch up on your payments, subsequent consequences like being sent to collections or sued for a debt will further damage your credit.