Yes, you can file bankruptcy to discharge credit card debt, but the process depends on which chapter you file and your income level
Credit card debt is one of the most common reasons people file for bankruptcy. When you file, the court can either wipe out your credit card balances entirely (Chapter 7) or reorganise them into a repayment plan (Chapter 13). Which one you can use depends on your income, assets, and how much you owe. Filing does not happen automatically — you must petition the court, and the process takes months.
Bankruptcy stops creditors from calling or suing you the moment you file. This is called the automatic stay. However, bankruptcy also damages your credit score, stays on your credit report for seven to ten years, and requires you to disclose all your finances to the court. It is a legal tool that works, but it has real costs.
Key Takeaways
- Chapter 7 bankruptcy can erase credit card debt entirely if you have little income or assets, but Chapter 13 requires you to repay some or all of it over three to five years.
- You must pass the means test — a calculation comparing your income to your state's median — to file Chapter 7; if you earn too much, you must file Chapter 13 instead.
- Filing bankruptcy stops collection calls and lawsuits when ready through the automatic stay, but it damages your credit for seven to ten years.
- You must complete credit counselling before filing and a financial management course after filing; both are required by law and cost between $50 and $300 total.
- A bankruptcy trustee is appointed to oversee your case and may sell non-exempt assets in Chapter 7 or collect payments from you in Chapter 13.
Chapter 7 bankruptcy: Erasing credit card debt
Chapter 7 is called liquidation bankruptcy because the court can sell your assets to pay creditors. However, most people who file Chapter 7 have few assets worth selling, so their credit card debt is straightforward erased. You keep certain possessions — a car up to a set value, your home equity up to a limit, household goods, and retirement accounts — because each state protects these through exemptions. The trustee sells only what is left.
To file Chapter 7, you must pass the means test. This compares your average monthly income over the past six months to your state's median income 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, taxes) from your income. If what remains is below a threshold set by federal law, you still pass. If it is above that threshold, the court will not let you file Chapter 7 and you must file Chapter 13 instead.
Chapter 7 takes three to six months from filing to discharge. During that time, you attend a meeting with the trustee and creditors (usually brief and routine), and creditors can object to the discharge, though they rarely do for credit card debt. Once the court issues your discharge order, the credit card companies cannot collect from you.
Chapter 13 bankruptcy: Repaying credit card debt on a plan
Chapter 13 is called reorganisation bankruptcy because you keep your assets and repay debt through a court-approved plan. The plan lasts three to five years. You make one monthly payment to a trustee, who distributes it to your creditors according to the plan. Credit card debt is usually unsecured, meaning it has lower priority than secured debt (like a mortgage or car loan), so credit cards often receive partial or no payment while you catch up on priority debts.
You can file Chapter 13 regardless of your income — there is no means test. However, your plan must show that you can afford the monthly payment and that you are committing enough of your disposable income to the plan. The court calculates disposable income the same way the means test does: income minus allowed expenses. If you have little disposable income, your plan payment is lower, but you must still file a plan that is feasible.
Chapter 13 takes three to five years to complete. If you finish the plan and make all payments on time, any remaining credit card debt is discharged. If you miss payments, the trustee can ask the court to dismiss your case, and you lose the protection of bankruptcy. Some people file Chapter 13 not to erase debt but to stop a foreclosure or repossession by catching up on missed payments through the plan.
How the means test determines which chapter you can file
The means test is a two-step calculation. First, compare your average gross monthly income for the six months before you file to your state's median income for your household size. The IRS publishes these medians and updates them regularly; they vary by state and family size. If your income is below the median, you pass and can file Chapter 7.
If your income is above the median, you move to step two. You subtract allowed monthly expenses from your income. Allowed expenses include rent or mortgage, property tax, insurance, utilities, food, transportation, childcare, and taxes. You do not subtract credit card payments, entertainment, or discretionary spending. The result is your disposable income. If disposable income is below $136 per month (as of 2024, though this figure changes annually), you pass. If it is above $406 per month, you fail and must file Chapter 13. If it falls between, a more complex calculation applies.
The means test uses your actual state and household size, so the threshold is different for a single person in Texas than for a family of four in California. You can find your state's median income on the U.S. Trustee Program website or through a bankruptcy attorney.
What happens to different types of credit card debt
Most credit card debt is unsecured, meaning the card company has no claim on your property if you do not pay. In Chapter 7, unsecured credit card debt is discharged — erased completely. In Chapter 13, unsecured debt is paid only after priority debts (taxes, child support, recent income taxes) and secured debts (mortgages, car loans). Often, credit cards receive little or nothing.
However, some credit card charges cannot be discharged. Recent cash advances (within 70 days of filing) and charges for luxury goods or services (over $675 within 90 days of filing) may be treated as non-dischargeable. The card company must object in court for this to happen, and the burden is on them to prove it. Credit card debt from fraud also cannot be discharged if the company proves you obtained the card through fraud.
If you are a co-signer or joint account holder on someone else's credit card, bankruptcy discharges your personal liability but does not affect the other person's obligation. The card company can still pursue them.
The automatic stay: How bankruptcy stops collection when ready
The moment you file bankruptcy, an automatic stay takes effect. This is a court order that stops creditors from collecting. They cannot call, send letters, sue, garnish wages, or freeze bank accounts. Violations of the stay can result in fines or sanctions against the creditor.
The stay lasts for the entire bankruptcy case. In Chapter 7, it lasts until your discharge (three to six months). In Chapter 13, it lasts for the entire plan (three to five years). If a creditor violates the stay after you file, you can report it to your bankruptcy attorney or the trustee, and the court can hold them in contempt.
A few debts are not stopped by the stay. Child support and alimony collection can continue. Criminal fines and restitution can continue. Tax liens can continue, though the IRS cannot garnish wages during bankruptcy. For most credit card debt, however, the stay is absolute.
Credit counselling and financial management requirements
Before you file bankruptcy, you must complete a credit counselling course from an agency approved by the U.S. Trustee Program. This is a one-time session, usually one to two hours, delivered online or by phone. It covers budgeting, debt management, and alternatives to bankruptcy. The agency issues a certificate, which you must file with the court. If you do not complete counselling, the court will dismiss your case.
After your case is filed, you must complete a financial management course before your debt is discharged. This is a separate course, also approved by the U.S. Trustee Program, covering money management and rebuilding credit. Again, you receive a certificate to file with the court. Both courses cost between $50 and $300 total, depending on the provider.
These courses are mandatory and non-negotiable. However, the court can waive the fee if you show financial hardship. Some non-profit agencies offer free or low-cost courses.
Costs and what you pay a bankruptcy attorney
Filing bankruptcy requires court fees and attorney fees. Court filing fees are set by federal law: $338 for Chapter 7 and $313 for Chapter 13 (as of 2024). You can request a fee waiver if you cannot afford it, or pay in installments.
Attorney fees vary by location and complexity. A straightforward Chapter 7 with no assets typically costs $1,000 to $2,500. Chapter 13 is usually more expensive because the attorney must draft a repayment plan and represent you throughout the case; fees range from $2,500 to $6,000 or more. Some attorneys offer payment plans. Legal aid societies in your area may provide free representation if you meet income limits.
You do not pay the trustee directly. In Chapter 7, the trustee is paid from any assets sold. In Chapter 13, the trustee takes a percentage of your plan payment (usually 10 percent) to cover administration.
How bankruptcy affects your credit and future borrowing
Bankruptcy appears on your credit report for seven years (Chapter 13) or ten years (Chapter 7). During this time, your credit score drops significantly — often by 100 to 200 points or more. However, your score can begin to recover when ready after discharge, especially if you use credit responsibly.
After bankruptcy, you can rebuild credit by obtaining a secured credit card (one backed by a cash deposit), making on-time payments, and keeping balances low. Many people are offered credit cards within months of discharge, though interest rates are higher. Mortgages and car loans become available again after two to three years, depending on the lender.
Some employers and landlords check credit reports, and bankruptcy may affect their decisions. However, federal law prohibits most employers from discriminating based on bankruptcy. Landlords have more discretion, though many will rent to someone with a bankruptcy discharge if they can show stable income since then.
Frequently Asked Questions
Will bankruptcy erase all my credit card debt?
Chapter 7 erases most credit card debt completely, but Chapter 13 repays some or all of it over three to five years. Whether you can file Chapter 7 depends on the means test. If you earn too much, you must file Chapter 13 instead, and credit cards are paid only after priority and secured debts.
What happens if I file bankruptcy while being sued by a credit card company?
Filing bankruptcy triggers the automatic stay, which stops the lawsuit when ready. The credit card company cannot continue the case or obtain a judgment against you. If they already have a judgment, bankruptcy can still discharge the debt, though the judgment may remain on your credit report.
Can I file bankruptcy if I have a co-signer on my credit card?
Yes, but bankruptcy discharges only your personal liability. The co-signer remains responsible for the full balance. The credit card company can pursue the co-signer for payment after your discharge.
How long does bankruptcy take from start to finish?
Chapter 7 typically takes three to six months from filing to discharge. Chapter 13 takes three to five years because you must complete the repayment plan. Both timelines assume no complications or objections from creditors.
Can I file bankruptcy if I am still receiving collection calls?
Yes. In fact, ongoing collection activity is a common reason people file. The automatic stay stops all collection calls and lawsuits the moment you file. You should notify your bankruptcy attorney of any calls after filing so they can report the violation.