Getting Rid of Credit Card Debt With Bankruptcy

By: Kathleen Michon

Many people file for bankruptcy because they have racked up excessive credit card debt. Often the credit was used to pay for necessities, like car repairs or medical bills. Both Chapter 7 and Chapter 13 bankruptcy can wipe out credit card debt, with a few exceptions. 

Credit Card Debt in Chapter 7 Bankruptcy

In Chapter 7 bankruptcy, most or all of your unsecured, nonpriority debt is discharged (wiped out). In return, you must give up nonexempt property so that the trustee can sell it and distribute the proceeds to your creditors. Credit card debt falls into the category of unsecured, nonpriority debt that is discharged. (Examples of priority debts that would not be discharged include child support and certain tax debts.)

To learn more about how Chapter 7 bankruptcy works, see The Chapter 7 Bankruptcy topic area.

Exceptions to Discharge: Credit Card Debt Incurred Due to Fraud

In a few circumstances, the creditor can challenge the discharge of your credit card debt. If successful, the court will not discharge the debt. These situations include:

• You made a false statement on your credit card application in order to deceive the creditor and the statement was "material" to the credit card issuer's decision to extend credit to you. For example, you grossly inflated your income.
• You charged more than $550 to any one creditor for luxury goods or services within 90 days of your bankruptcy filing. In this situation, the law presumes that your intent was fraudulent. 
• You got a cash advance from any one creditor totalling more than $825 within 70 days of your bankruptcy filing.

When Credit Card Debt is Secured

In rare situations, the credit card lender may take a security interest in some of your property in the credit card agreement. If this is the case, then the debt is not unsecured. To learn what happens to secured debt in Chapter 7 bankruptcy, see Your Property in Chapter 7 Bankruptcy.

Credit Card Debt in Chapter 13 Bankruptcy

In Chapter 13 bankruptcy, you repay your creditors (some in full, some in part) through a repayment plan that lasts three to five years. The plan usually provides for payment of only a portion of your unsecured, nonpriority debt, like credit card debt. (How much you end up paying depends on several factors, including your "disposable income." To learn more, see The Chapter 13 Repayment Plan.) In fact, most Chapter 13 filers pay only a small percentage of their credit card and other unsecured debts. At the end of the repayment period, the remaining balance on your credit card debt is discharged. 

(To learn more about Chapter 13 bankruptcy, including what happens to your debts and property, see the Chapter 13 Bankruptcy topic area.)

Can I File Chapter 7 Bankruptcy on Credit Cards Only?

In Chapter 7, you can file for bankruptcy and then reaffirm all of your debts other than your credit card debt. This would make you personally liable for those reaffirmed debts after the bankruptcy is over. It would be a rare situation, however, when this would make sense.

Can the Credit Card Companies Sue Me After I File for Bankruptcy?

No. Once you file for bankruptcy protection, bankruptcy's automatic stay prohibits most creditors from continuing collection efforts against you. The stay extends to credit card companies, and prohibits them from suing you, sending you collection letters, calling you, or engaging in other collection activites. To learn more, see Bankruptcy's Automatic Stay.