Bankruptcy stops credit card collection when ready, but it damages your credit for years and costs money upfront
When you file for bankruptcy, an automatic stay goes into effect the moment the court receives your petition. This stay orders creditors — including credit card companies — to stop calling, sending bills, and pursuing collection actions. The debt itself does not disappear automatically; instead, a bankruptcy court decides what happens to it based on which chapter you file under and what you own.
Chapter 7 bankruptcy can erase credit card debt entirely if you have few assets and low income. Chapter 13 bankruptcy restructures your debt into a repayment plan over three to five years. Both chapters require you to pay filing fees and attorney fees, and both leave a record on your credit report that affects your ability to borrow for years. This is a legal process with real consequences — understanding what actually happens matters before you decide whether it fits your situation.
Key Takeaways
- Filing bankruptcy stops credit card companies from collecting when ready through an automatic stay, but the debt is handled through the court, not erased on its own.
- Chapter 7 can discharge credit card debt entirely if your income and assets meet the means test, while Chapter 13 restructures debt into a three- to five-year repayment plan.
- You must pay court filing fees (currently $338 for Chapter 7, $313 for Chapter 13) plus attorney fees, which typically range from $1,000 to $3,500 depending on your situation and location.
- Bankruptcy remains on your credit report for seven to ten years and makes it harder to get credit cards, loans, housing, and sometimes employment during that time.
- You must complete credit counseling before filing and a financial management course after filing, both through court-approved providers.
Chapter 7 bankruptcy: Debt discharge if you pass the means test
Chapter 7 is a liquidation bankruptcy. The court appoints a trustee who reviews your assets, income, and debts. If you own property beyond what the law protects (called exemptions), the trustee can sell it to pay creditors. Credit card debt is unsecured, meaning the card company has no claim to your property — so credit card holders are often paid little or nothing in Chapter 7.
To file Chapter 7, you must pass the means test, which compares your household income to the median income in your state for a family your size. If your income is below the median, you pass automatically. If your income is above the median, the test subtracts allowed expenses (housing, food, transportation, taxes) from your income. If what remains is below a threshold set by federal law, you still pass. If you fail the means test, the court may dismiss your case or force you into Chapter 13 instead.
If you pass and file Chapter 7, credit card debt is typically discharged — meaning you no longer owe it legally. The discharge happens three to six months after you file, once the trustee has reviewed your case and creditors have had a chance to object. After discharge, credit card companies cannot pursue collection on that debt.
Chapter 13 bankruptcy: A repayment plan over three to five years
Chapter 13 does not erase debt; instead, it reorganizes it. You propose a repayment plan to the court that lasts either three or five years, depending on your income and debts. During this time, you make one monthly payment to a court-appointed trustee, who distributes the money to your creditors according to the plan.
Credit card debt in Chapter 13 is treated as unsecured debt, which means it is paid after secured debts (like a mortgage or car loan) and priority debts (like recent taxes or child support). Depending on your plan, you might pay credit card debt in full, partially, or not at all — the court decides based on your disposable income and the total amount owed. Many people pay a percentage of their credit card debt and the rest is discharged when the plan ends.
Chapter 13 does not require you to pass a means test. You can file it even if your income is above the state median, as long as your debts fall within the current limits (these limits change every three years; as of 2024, the limit for unsecured debt is $465,275). Chapter 13 is often chosen by people who have a steady income, want to keep their home or car, or owe debts that cannot be discharged in Chapter 7.
Costs: Filing fees, attorney fees, and course requirements
The federal court filing fee for Chapter 7 is currently $338. For Chapter 13, it is $313. These fees go to the court and are non-refundable regardless of the outcome.
Attorney fees vary widely by location and complexity. In many areas, Chapter 7 costs between $1,000 and $2,000 in attorney fees, while Chapter 13 typically costs $2,500 to $3,500 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 cases for free or at reduced cost if you meet income limits.
Before filing, you must complete a credit counseling course through a court-approved agency. This course costs between $50 and $100 and takes about two hours. After your case is filed, you must complete a financial management course, which also costs $50 to $100. Both are required; skipping them can result in dismissal of your case.
What happens to your credit report and borrowing after bankruptcy
A Chapter 7 bankruptcy stays on your credit report for ten years from the filing date. A Chapter 13 bankruptcy stays for seven years. During this time, your credit score drops significantly — often by 100 to 200 points or more — and lenders see the bankruptcy as a sign of high risk.
Getting new credit after bankruptcy is possible but expensive. Credit card companies that will approve you typically charge higher interest rates and require a deposit. Auto loans and mortgages are available, but interest rates are higher than for borrowers without bankruptcy. Some employers, landlords, and insurance companies also check credit reports and may deny applications based on bankruptcy, though laws in many states limit how far back they can look.
Over time, the impact lessens. After two to three years, you may may have access to for better rates. After the bankruptcy falls off your report entirely (seven to ten years), its effect on new credit decisions ends, though the bankruptcy itself remains part of your public record.
The automatic stay: What stops and what does not
When you file bankruptcy, the automatic stay stops most collection activity when ready. Credit card companies must stop calling and sending collection letters. If a lawsuit is pending, it pauses. If a wage garnishment is in process, it stops. This breathing room is one reason people file bankruptcy — it halts the constant pressure from creditors.
The automatic stay does not stop everything. Child support and alimony collection continue. Criminal proceedings are not affected. Tax collection by the IRS continues (though bankruptcy can discharge some old tax debt). Eviction proceedings may continue in some circumstances, depending on state law and how far along the process is. If you are behind on a mortgage or car loan and the lender wants to foreclose or repossess, the stay delays it but does not prevent it unless you catch up on payments or modify the loan through the bankruptcy plan.
How bankruptcy affects different types of credit card debt
Most credit card debt is unsecured and can be discharged in Chapter 7 or included in a Chapter 13 plan. However, some credit card charges have special treatment. Cash advances taken within 70 days of filing may not be discharged if the court finds you took them knowing you would file bankruptcy. Charges for luxury goods or services over $725 made within 90 days of filing are presumed fraudulent and may not be discharged.
These rules exist to prevent people from running up debt right before filing. In practice, they are enforced inconsistently and depend on the specific facts. A credit card company must object to discharge in court, and many do not bother for individual cases. Still, if you took a large cash advance or made big purchases shortly before filing, the card company may challenge whether those charges should be discharged.
Alternatives to bankruptcy for credit card debt
Bankruptcy is not the only option for managing credit card debt. Debt consolidation combines multiple debts into a single loan, usually at a lower interest rate, which can make payments manageable. Debt settlement negotiates with creditors to accept less than the full amount owed, though this damages your credit and may have tax consequences. A debt management plan through a nonprofit credit counselor restructures your payments without going to court, though creditors are not legally bound to participate.
These alternatives do not stop collection activity the way bankruptcy does, and they do not erase debt. But they also do not require court filing, do not cost as much upfront, and do not stay on your credit report as long. Whether any of these fits your situation depends on how much debt you have, whether you can afford payments, and how urgently you need collection to stop.
Frequently Asked Questions
Can I file bankruptcy if I still have a job and income?
Yes. Having income does not disqualify you from bankruptcy. Chapter 7 requires you to pass the means test, which compares your income to your state's median. Chapter 13 is available to anyone with income, as long as your debts are within the legal limits. Many people who file bankruptcy are employed.
Will bankruptcy wipe out all my credit card debt?
In Chapter 7, yes — credit card debt is typically discharged entirely if you pass the means test. In Chapter 13, you pay what you can afford over three to five years, and the rest is discharged when the plan ends. Some charges (like cash advances or luxury purchases made right before filing) may not be discharged if the card company objects.
How long does bankruptcy take from filing to discharge?
Chapter 7 usually takes three to six months from filing to discharge. Chapter 13 takes the full length of your plan — three to five years — before remaining debt is discharged. During Chapter 13, you make monthly payments the entire time.
Can I keep a credit card after bankruptcy?
You can explore for new credit after bankruptcy, but approval is not may provide. Secured credit cards (which require a cash deposit) are easier to obtain. Some issuers specialize in post-bankruptcy credit. You cannot keep a credit card account that was included in the bankruptcy — that account is closed as part of the process.
What happens if I file bankruptcy and then get sued by a credit card company?
The automatic stay prevents new lawsuits from moving forward. If a lawsuit was already filed before you filed bankruptcy, it pauses. The credit card company must file a claim in the bankruptcy court instead, and the debt is handled through the bankruptcy process rather than in civil court.