How to File Bankruptcy on Credit Cards

You’re probably already past the well-intentioned warnings from experts about bankruptcy.

“Don’t do it unless you have to.”

“It’ll hurt at least as much as it helps.”

“Make it the last resort.”

Maybe you’ve heard all that and yet here you are, thinking about bankruptcy anyway. You’re thinking about how to file it. You’re thinking about what bankruptcy can do to fix the predicament your credit card use and (more likely) abuse has you in.

If you’ve decided the balances on your plastic are too massive to get help from any other debt-relief method, then bankruptcy is worth exploring. But so, you know: In good conscience, we’ll have to reiterate some of those warnings as we discuss how to claim bankruptcy on credit cards.

Bankruptcy can lead you out of the debt wilderness, yes, but the journey is neither easy nor pretty. 

Can You File Bankruptcy on Credit Cards?

Most bankruptcies, especially Chapter 7, are filed because of credit card debt.

Here’s the thing about credit card debt: In most cases, it’s unsecured, and that makes bankruptcy a viable remedy when you can’t pay the balances on your cards. Unsecured debt such as a line of credit from a card company doesn’t require you to put up collateral to get into it, unlike your mortgage or car loan which is secured by … well, your house or your car. If you don’t pay back those loans, the lender can reclaim the property you bought with its money and use it to try to get square with what you owe.

There’s nothing you can forfeit back to a card company when you can’t pay its bills, so filing credit card bankruptcy is a way to get out from under that debt. A bankruptcy has to include your secured debt, too, which means your house, car and other property will be at risk of liquidation when you file Chapter 7, but it is particularly helpful for relief from the unsecured debt you’ve taken on.

Is there a catch? Always – several, in fact. (Remember, we said bankruptcy isn’t easy.) Here are some of them:

• Hate to be Captain Obvious here, but for openers, you have to live without credit cards – all of them, in most cases — during your bankruptcy.
• You can’t get away with making expensive purchases with your card or cards in the period leading up to filing and expect those charges to be eliminated by the bankruptcy.
• You can’t selectively pay off debts you owe to family, friends, or business partners in advance of filing. The court will consider any such payments within a year before you file to be unfair to the other entities to whom you still owe money, including the credit card companies.
• You have to prove to the court that your finances are in straits dire enough to make you eligible for bankruptcy in the first place by submitting to a bankruptcy means test. If you don’t pass the means test, you’ll likely want to explore Chapter 13 bankruptcy.

Next, we’ll get to some of the differences between Chapters 7 and 13 as they relate to credit card debt.

Chapter 7 Bankruptcy: Wiping Out Credit Card Debt

Chapter 7 is the most common form of bankruptcy, partly because it’s also the quickest. If you qualify to file, you can start and finish a Chapter 7 bankruptcy in 4-6 months and be free and clear of much, if not most of your unsecured debt. It can wipe out credit card bills, personal loans, medical bills, utility bills, and some government bills.

But as we mentioned earlier, not everyone is eligible for Chapter 7. The means test is the most prominent part of the Chapter 7 bankruptcy qualification process in that it helps the bankruptcy court determine if you have enough income to pay your debts without Chapter 7. If it decides your resources aren’t enough to meet those obligations, then you qualify. The formula uses your average monthly income over the six months before you file and compares that number to the median monthly income in your state.

The eligibility decision includes several other factors, too, that might foil your Chapter 7 petition. If, for example, the court discovers you made a significant luxury purchase in the time before you file, it can reject your application. Similarly, the court will disqualify your case if it finds you behaved fraudulently by attempting to hide some of your assets (such as a hidden bank account) as a way to pass the means test.

Be aware of two other reasons your Chapter 7 petition can be rejected. It won’t be approved if you filed an earlier Chapter 7 or Chapter 13 application that was dismissed in the previous six months. And you won’t be allowed to file if you completed a prior Chapter 7 bankruptcy in the last eight years or a Chapter 13 bankruptcy in the last six years.

Otherwise, if you toe the lines of the filing procedures and the income reporting requirements, Chapter 7 can give you the financial reset you need. It starts with an automatic stay on all efforts by your creditors to collect what you owe them, and it finishes with discharges of most or all of your unsecured debt, including credit cards, which allows you to move forward with a clean slate.

But be aware: A Chapter 7 bankruptcy stays on your credit report for 10 long years, which creates problems when you apply for future loans, including replacing the credit cards you lost during the bankruptcy.

Chapter 13 Bankruptcy: Repaying Part of Your Credit Card Debt

Here’s one of the differences between Chapter 13 and Chapter 7 as they relate to credit cards: Chapter 7 relieves you of your credit card debt, while a successful Chapter 13 bankruptcy helps you pay off some credit card debt and then discharges the rest.

Chapter 13 can be easier to qualify for. It involves a court-ordered and trustee-administered repayment plan in which you make one monthly payment to the trustee, who apportions it out to your creditors according to the plan on which all parties have agreed.

There are other differences, too, including the time it takes to complete each form of bankruptcy. Chapter 7 can be finished in 4-6 months; Chapter 13 usually takes 3-5 years. At the end of a successful Chapter 13 case, you’ll have paid back a percentage of what you owe, and the rest of your credit card, medical, and personal loan debt will be removed.

If you don’t pass the means test to qualify for Chapter 7, you should take a hard look at Chapter 13. It can be an attractive alternative despite the time and money it takes. Here’s how:

• You keep your home and property in Chapter 13. Those things run the risk of being liquidated in Chapter 7.
• Chapter 13 allows you to rearrange the terms of some secured debt such as a car loan so you can extend your payments over the duration of the bankruptcy.
• The repayment plan keeps you on a regular schedule with a stable income that covers the monthly payment to the trustee.
• A Chapter 13 bankruptcy stays on your credit report for seven years, compared to 10 years for Chapter 7.
• Chapter 13 often doesn’t carry the stigma that Chapter 7 bankruptcy does.

However, Chapter 13 filings statistically are less successful than Chapter 7 cases, partly because Chapter 13 takes so long to complete. Figures from the American Bankruptcy Institute show a success rate of between 40%-50% for Chapter 13, compared to nearly 97% of Chapter 7 bankruptcies that are filed with the help of an attorney.

Will Bankruptcy Clear All My Credit Card Debt?

If you fill out the forms correctly, list your debts and creditors honestly, and show up for all the mandatory meetings, then yes, bankruptcy can clear all of your credit card debt.

All your credit card balances fall under the rules of what debts are dischargeable in bankruptcy. You can also get relief from debts from personal loans, utility bills, medical bills, and late rent or lease payments through bankruptcy. You can even get federal student loans discharged if you can prove you’re a hardship case, though that is rare.

That’s as close to a definitive answer as we can give you. But like just about everything else involving bankruptcy, even that ‘yes!’ comes with a handful of qualifications. Bankruptcy court, for example, might not grant relief from a credit card charge for luxury goods you bought in the three months before you filed your application. Any purchase of more than $900 for jewelry, vacations, electronics, or other items the court considers unnecessary likely won’t be eligible to be discharged in your bankruptcy.

That’s true, too, of a large cash advance taken on a credit card in the 70 days prior to filing; the dollar limit there is $1,250. As with buying expensive luxury goods in the months before your bankruptcy, the court likely will consider a cash advance to be evidence that you aren’t being truthful about your financial plight.

Most everything else related to your credit card balances, though, can be discharged. But be aware that bankruptcy isn’t a panacea for all financial woes. It won’t relieve you of the necessity to pay what you owe for alimony, child support, private student loans, legal judgments, and some tax debt. If you’ve put those payments on your credit cards, you’ll still be liable for them.

Bankruptcy is a complicated process, obviously, which is why most experts strongly recommend hiring an attorney to guide you through it. It’s possible, though, to go it alone and save that expense if you can’t afford a lawyer. Here’s how to file bankruptcy online.

What Happens to My Credit Cards After Bankruptcy?

Credit card companies don’t fool around with bankruptcy. You must … Must … MUST list all your debts when you file bankruptcy, including your credit card debts. As soon as you file, the issuers cancel your accounts. They know you’ve filed because the court sends an official notice of your bankruptcy to each of your creditors. If that somehow isn’t enough for them to go on, the card companies regularly monitor your credit reports, which will include your bankruptcy because the credit bureaus (Experian, Equifax, and TransUnion) are wise to the public information of your filing.

You don’t have to be a rocket scientist to figure out why they cancel your cards when you file for bankruptcy. They know they aren’t going to be paid what you already owe them, so why would they keep extending credit to you? Even a credit card with a zero balance, which also must be included on your list of creditors, is likely to be canceled, as the company wants to protect itself against future charges.

Life without credit cards during bankruptcy might be a shock. But there is a glass-half-full element to it, too. Once your bankruptcy petition has been granted, you stop making payments and the credit card companies and collection agencies stop harassing you to make them.

Even when you finish a successful bankruptcy, your access to new credit cards will be limited. Unsurprisingly, you’ll be considered a very high-risk customer. But there are ways to rebuild credit after bankruptcy, including with certain types of credit cards that come with restrictions. They include secured credit cards that you back with collateral such as advance payments, and retail credit cards for which approval is often easy. As long as you make the regular on-time payments on those cards that you weren’t making before your bankruptcy, your credit score eventually can climb back to respectability.

How to Decide If Bankruptcy Is Right for You

Unfortunately, everyone’s financial circumstances are different, so it’s difficult to know if your particular hardships will be best addressed by bankruptcy. But one way to start the process is to crank up the calculator and crunch some numbers to assess how serious your problem is.

Add up your total debt, including your credit card balances and the interest rate you’re paying (or, at this point, probably not paying) on them. Put it next to your total income. Figure out how much disposable income you have each month. (Disposable income is what is left after you’ve subtracted taxes and other mandatory deductions, such as Social Security contributions from your total income.) Then try to gauge how hard it will be and how long it might take for that disposable income to pay off your debts.

If your ratio of debt to annual income is in the 40%-50% range, or higher, then bankruptcy might be right for you. Here’s a helpful way to frame the questions and decisions about it from Upsolve, a nonprofit online bankruptcy tool.

Don’t jump willy-nilly into it, though, without considering the alternatives to bankruptcy first. And don’t be afraid to ask for advice as you deliberate. Talk to a credit counselor or financial advisor, and/or consult with a reputable bankruptcy attorney, about the pros and cons of each debt relief option.

Risks and Consequences of Filing for Bankruptcy

This is where we go over that ground you might’ve already covered – the reasons the experts tell you to make bankruptcy your very last resort. Even if you’ve already heard about the perils, they’re worth a quick refresher as you’re deciding whether to file.

Here are some of the negatives about bankruptcy:

• Your credit score falls off a cliff. File for bankruptcy and your score will drop anywhere from 100-250 points before you can say “Rumpelstiltskin,” even if your number was healthy before you filed.
• Your loan requests will be stonewalled. Getting approval for loans or new credit cards will be next to impossible.
• The black mark on your credit report has a long shelf-life. Your bankruptcy will be there for every potential lender to see for 10 years for Chapter 7, and 7 years for Chapter 13.
• Future borrowing will be more expensive. Until your bankruptcy is well behind you, the only interest rates available to you will be astronomical.
• You might lose some property. Doesn’t always happen, but your assets can be liquidated to pay off your creditors in Chapter 7.
• You can’t file another bankruptcy right away. You have to wait 8 years after your first Chapter 7 filing to petition for another one, and you have to wait at least two years between Chapter 13 filings. You can’t file Chapter 13 for at least four years after you filed Chapter 7. The waiting period to file Chapter 7 after you’ve filed Chapter 13 varies depending on the structure of your Chapter 13 repayment plan.
• You might carry a social stigma. Bankruptcies are on the public record, so your financial privacy is at risk.

All that said, bankruptcy isn’t the end of the world. It’s a stretch to say you’ll look back on it and laugh someday, but you will be able to get back on your feet. After all, the process is designed to provide a fresh start to your financial life. How long it takes to recover from bankruptcy depends on the strength of your post-bankruptcy money strategy and your ability to see that strategy through.

Alternatives to Bankruptcy for Credit Card Debt

You have options, and they all can help people whose misuse of credit cards has them struggling with debt. The choices can be confusing, especially as you weigh the pros and cons of, say, debt consolidation vs bankruptcy. Take the time to explore every possible way out. You might find a better, less painful, solution than bankruptcy, especially if your credit card balances aren’t prodigious.

Among your options are:

• Debt management. These programs are offered by nonprofit credit counseling agencies like InCharge Debt Solutions, who work with card companies to reduce interest rates on credit card debt and lower monthly payments to an affordable level. A debt management plan is not a new loan, and your credit score is not a factor for enrolling.
• Debt consolidation. In most cases, debt consolidation is a new loan, typically from a bank, credit union or online lender, big enough to pay off debt from multiple credit cards. It should reduce your monthly payments to one, at a lower interest rate than your cards carry.
• Credit card debt forgiveness. Some nonprofit credit counseling agencies offer to try to negotiate an agreement with credit card companies that allow you to pay only 50%-60% of what you owe. A credit card forgiveness plan is usually completed with 36 fixed payments.
• Debt settlement. In debt settlement, you make payments to an escrow account while a for-profit company negotiates with the card company on your behalf. When the money in the escrow account is large enough, the debt settlement company offers it as a settlement of what you owe, typically around 50%. But there are severe consequences with debt settlement, and the fees may eat up all the savings you receive.

When to Stop Using Credit Cards Before Bankruptcy

The magic numbers for non-essential credit card purchases pre-bankruptcy are 90 days and $900. Anything that costs that much and appears on your credit card within 90 days of filing can trigger a presumptive fraud accusation in bankruptcy court. For a cash advance on a credit card, the magic numbers are 70 days and $1,250.

So, when to stop using your credit cards? When luxury, non-essential items are involved, you should stop at least 90 days before you intend to file. That’s the minimum; in some states, the bankruptcy court is allowed to look back at your spending for as much as a year prior to when you file.

That doesn’t mean you can’t charge other things on your cards during that time, but you need to be careful. To be safe, you should only use your plastic to pay for essentials such as gas, groceries, utilities, rent, or your mortgage.

Purchases for expensive luxury items (say, a second car, a television, jewelry, a vacation, or a pricy piece of furniture) send the wrong message to the court in charge of accepting – or rejecting! – your bankruptcy petition. Luxury items are signs that you aren’t really serious about your financial plight, and so those charges might be presumed to be fraudulent in the context of your bankruptcy. Unless you can convince the court that they were essential purchases, they won’t be eligible for discharge even if your bankruptcy is approved. You’ll still have to pay for them after your bankruptcy ends.

The worst-case scenarios are that those charges were so frivolous that the court simply rejects your bankruptcy petition before your case can begin, and you become subject to fines or possibly even criminal charges for the fraud.

As part of the bankruptcy process, federal law requires you to take a pre-file bankruptcy credit counseling course at least 180 days before you file. It’s meant to provide advice on other ways to get debt relief before turning to the last resort. The course will include information about how and when to use your credit cards in the period leading up to your filing date.

How to Get Help Filing Bankruptcy

We mentioned earlier that bankruptcy can be a DIY (Do It Yourself) project if you want to go it alone and file online. But the process involves intensive accounting, financial research, complicated forms, legal meetings, fee deadlines and countless other twists, turns and hoops through which to jump. And that’s before you consider the long-term ramifications for your credit and future financial stability.

For all those reasons, it’s highly recommended that you hire a reputable bankruptcy attorney to guide you along the way … if you can afford it. Depending on where you live and the complexity of your case, attorney fees can range from $1,000-$3,000. If that’s out of your range, you might qualify for free legal help through the American Bar Association or the Legal Services Corporation.

Hiring an attorney makes a huge difference. American Bankruptcy Institute research from 2024 shows that 96.9% of Chapter 7 cases filed with an attorney resulted in a discharge of debts, compared to only 64.8% of cases filed without an attorney.

It should go without saying, but the more you know, the smarter you’ll be about your bankruptcy. The law helps in that regard. As part of the process, it requires you to attend both the pre-filing credit counseling course we mentioned earlier, and a pre-discharge debtor education course before your case becomes final.

But you don’t need to count just on those classes to get smarter about your money. You can always get credit counseling services from a nonprofit credit counseling agency before, during, and after your bankruptcy. Counselors at nonprofit agencies are trained and certified in the areas of budgeting, consumer credit, money, and debt management, including filing bankruptcy.

InCharge Debt Solutions, a nonprofit credit counseling agency, offers those services as well as both of the required bankruptcy-related educational courses.

FAQs About Filing Bankruptcy on Credit Cards

Can I keep one credit card?

It’s possible, but highly unlikely you will be allowed to keep one credit card. In almost every case, your card’s issuer cancels its contract with you when you file bankruptcy. In rare circumstances, a card with zero balance on it might not be canceled but any new purchase you try to make with it during the bankruptcy will be challenged.

What happens to joint or authorized-user accounts?

Only the primary cardholder is responsible for payments on an authorized-user account. If that’s you and you file bankruptcy, the authorized users on your account aren’t liable for your overdue balance and so won’t be affected by your bankruptcy. If you are an authorized user on someone else’s account and you file bankruptcy, you don’t need to include that account in the list of creditors you submit to the bankruptcy court because you aren’t responsible for its balance. (The primary cardholder, though, will still have to pay for what you charged.) Joint accounts are different in that all account holders are equally responsible for the entire balance; if your joint holder doesn’t pay the bill, you must. When a joint holder files bankruptcy, the account will be included in the filing, and the cards will be canceled for all holders. The debt might get discharged, but the credit damage will be done to everyone on the account.

Will I have to go to court?

Unless you file online, you’ll have to submit your bankruptcy petition and other paperwork with a clerk at the court, but there are no other formal court appearances necessary. However, there are mandatory legal meetings outside the courtroom, including a session with a trustee and a meeting with your creditors.

Is it better to settle or file bankruptcy?

It depends on your financial situation. Settlement might be a better option if your debt isn’t overwhelming, you have the resources to make a lump-sum payment to appease your creditors, and you want less-severe damage to your credit than bankruptcy brings. Bankruptcy might be more advantageous if your debt is past the point of hope, you’re having trouble making day-to-day ends meet, you’re being sued and might lose your home, and you need immediate relief from creditors and collection agents.