Can Filing for Bankruptcy Clear Credit Card Debt?

Yes, declaring certain forms of bankruptcy can clear most of your credit card debt. It can also help you form a repayment plan and stop a credit card company from harassing you.

You can file a Chapter 7 bankruptcy to clear credit card debt. This type of bankruptcy works to clear almost all unsecured debt. This type of bankruptcy will not remove your taxes or student loans, but it can help give you a fresh start from credit card payments. It also protects your property from creditors trying to seize your assets to repay this debt.

Bankruptcy filers should also remember that it can take four to six months for your discharge to happen. If you are drowning in debt, contact a bankruptcy attorney for help.

• Can I File for Chapter 7?
• Do I Pass the Chapter 7 Means Test?
• Which Expenses Can I Deduct for the Bankruptcy Means Test?
• How Do I Get Rid of Credit Card Debt in Chapter 13 Bankruptcy?
• Why Might the U.S. Bankruptcy Court Deny My Discharge?
• What Is the Luxury Goods Objection?
• What About Paying Non-Dischargeable Debts Objection?
• Can Credit Card Companies Sue Me Before a Chapter 7 Filing?
• At What Point Should You Call a Bankruptcy Attorney?

Chapter 7 for Credit Card Debt: How It Works

While still in debt, credit card issuers may:

• Raise your interest rates
• Charges late fees
• Charge over-balance fees
• Give your account to a debt collection agency
• Deny new credit card applications
• File a debt collection lawsuit to try to claim repossessions

Collection agencies can call you at home or work and demand payment of your total debt. This harassment is legal (with certain exceptions) unless you file a Chapter 7 or use another method to stop creditor harassment.

Once you file bankruptcy, you will get an "automatic stay" that:

• Stops creditors from calling
• Erases unsecured credit card debt
• Stops wage garnishment for debts
• Appears on your credit history and lowers your credit score

Can I File for Chapter 7?

Anyone can file a Chapter 7 bankruptcy case in bankruptcy court. But this doesn’t mean the court will maintain your bankruptcy petition. The court may deny your petition during bankruptcy proceedings for not following the bankruptcy filing terms or debt management plan.

Your average annual income must typically be below the median income for your state to qualify for Chapter 7 bankruptcy. This is the "means test."

Do I Pass the Chapter 7 Means Test?

You can find your state’s median income for singles or families from the U.S. Trustee Program. For example, the median income threshold for the bankruptcy means test in Oregon for 2024 is $70,266. You must earn less than this amount to qualify for Chapter 7 bankruptcy.

The U.S. Bankruptcy Courts allow you to deduct certain expenses from your monthly income. Even if you don’t qualify for a Chapter 7 bankruptcy case based on your income, you may be eligible once you subtract your expenses.

Which Expenses Can I Deduct for the Bankruptcy Means Test?

While every bankruptcy case is different, there are common expenses you can deduct from your income to satisfy the means test. Most of these are household expenses you and your family must pay monthly.

Some of the common monthly payments you can deduct include:

• Mortgage payment (rent) and insurance
• Car loan and auto insurance
• Utility bills
• Childcare
• Health insurance
• Outstanding medical debt and current medical bills
• Life insurance
• Child support and alimony
• Tax debts
• Secured debt payments

The court will also consider extraordinary expenses, such as educational expenses for a child with disabilities. Your bankruptcy lawyer may meet with the bankruptcy trustee to see which deductions they’ll approve.

How Do I Get Rid of Credit Card Debt in Chapter 13 Bankruptcy?

You should speak to a bankruptcy attorney to review your options if you make more than the median income. If you don’t pass the Chapter 7 means test, you can’t file a Chapter 7 bankruptcy. This doesn’t mean you have no options.

If your income exceeds the median income, you may be able to file Chapter 13 bankruptcy. In a Chapter 13 bankruptcy case, you must agree to the trustee’s proposed repayment plan. This will give you more time to repay your debts without creditors harassing you.

Your repayment plan will give you 36-60 months to repay your debt. Secured creditors take priority, so you will likely have to pay these debts. For non-priority, unsecured debts, such as credit card debt, the trustee may arrange for you to pay a reduced amount. Once you complete your payment plan, the court will discharge any remaining debt.

Why Might the Court Deny My Bankruptcy Discharge?

There is a chance that your creditors may file an "adversary proceeding" during your bankruptcy case. An adversary proceeding happens when a creditor argues that the court should not discharge some of your debts.

A creditor may do this for a variety of reasons. But common reasons a lender will file adversary proceedings include the following:

• You bought luxury goods using your credit card
• You took out cash advances on your card
• You have paid other credit card bills in full
• You used your credit card for expenses that are not dischargeable in bankruptcy, such as student loan debt

If you filed for bankruptcy primarily to eliminate your high credit card balances, this can be a significant problem. Your only option here will be to redeem the credit card debts and pay them post-bankruptcy. Your bankruptcy attorney may be able to convince the credit card company to settle for less than the total amount. But there is no guarantee this will happen.

The bank knows you will have little to no debt once your bankruptcy is complete. The argument that you don’t have enough income to pay your credit card bills will no longer work.

What Is the Luxury Goods Objection?

A creditor may object to a discharge if you bought "luxury goods" within 90 days of filing your Chapter 7 bankruptcy petition. The limit for these items and services is $675. If you charged more than that to your cards, the trustee would likely exclude the credit card debt from your bankruptcy.

The courts can define "luxury" broadly. They may construe it to mean anything not completely necessary to survive day-to-day or for your children. For example, there is a difference between buying your child a bike and purchasing an at-home luxury exercise bike for yourself.

What About Paying Non-Dischargeable Debts Objection?

A creditor may also object to your Chapter 7 debt dismissal if you used your credit card on items the courts do not traditionally dismiss in bankruptcy.

This list includes:

• Alimony (spousal support)
• Child support
• Taxes or back taxes
• Student loans

Can Credit Card Companies Sue Me Before a Chapter 7 Filing?

Credit card companies can bring a debt collection lawsuit against you. They usually don’t do this until they’ve hired debt collectors to make payment arrangements with you. If a bank does file suit, they’ll ask the judge to issue a personal judgment against you.

The court may place a lien on your property. If this happens, your debt will no longer be "unsecured." The creditor can seek to force a sale of your nonexempt property to pay off the debt.

If you can’t pay the debt or hire an attorney to fight the case, your best option may be to file for bankruptcy. This will stop any legal action against you. If the creditor does get a judgment against you, bankruptcy won’t automatically remove a lien against you, but you can file a motion to avoid the lien.

At What Point Should You Call a Bankruptcy Attorney?

If you suspect you can’t repay your credit card debt or if creditors are harassing you, you should talk to a bankruptcy attorney to better understand your options. If you can afford a bankruptcy attorney, they can be instrumental in the process. If you can’t afford an attorney, contact your local Legal Aid office.

It is hard to imagine paying a bankruptcy attorney when you are already in debt. But a skilled attorney can stop creditor harassment and get you on the right track to debt relief.