Can I File Bankruptcy on Credit Card Debt?

Bankruptcy offers a structured legal pathway for individuals grappling with significant credit card debt. This process provides an opportunity for financial relief, either through the complete elimination of eligible debts or by establishing a manageable repayment plan. Understanding its fundamental principles and procedural requirements can demystify the journey toward a fresh financial beginning.

Types of Bankruptcy Relevant to Credit Card Debt

Individuals primarily consider two types of consumer bankruptcy when addressing credit card debt: Chapter 7 and Chapter 13. Each chapter serves a distinct purpose and treats credit card obligations differently, catering to varying financial circumstances.

Chapter 7, often termed liquidation bankruptcy, is designed to discharge most unsecured debts, including credit card balances. A bankruptcy trustee may liquidate certain non-exempt assets to repay creditors, though many filers retain most property due to available exemptions. Chapter 7’s primary goal is to provide a swift financial fresh start by eliminating eligible debts.

Chapter 13, known as reorganization bankruptcy, allows individuals with a regular income to repay their debts over a period, typically three to five years. Credit card debt is included in a court-approved repayment plan, with regular payments made to a trustee who then distributes funds to creditors. Any remaining unsecured credit card debt may be discharged upon successful completion of the repayment plan. This option is suitable for those who wish to keep valuable assets, such as a home or car, which might otherwise be at risk in a Chapter 7 filing.

Determining Eligibility and Mandatory Pre-Filing Steps

Before an individual can file a bankruptcy petition, specific eligibility criteria must be met, and mandatory steps completed. These requirements ensure that bankruptcy is pursued appropriately.

Eligibility for Chapter 7 bankruptcy often hinges on a “means test,” which assesses an individual’s income and expenses to determine if they qualify for debt discharge. The test compares the debtor’s current monthly income to the median income for a household of the same size in their state. If income falls below the median, the debtor typically qualifies. If it exceeds the median, a detailed analysis of disposable income, considering allowed expenses, determines eligibility.

Chapter 13 bankruptcy has specific debt limits. As of April 1, 2025, individuals must have unsecured debts totaling less than $526,700 and secured debts less than $1,580,125. These limits are adjusted periodically. If debts exceed these thresholds, Chapter 13 may not be an option.

A mandatory pre-filing step for all individuals is to complete a credit counseling course from an approved agency. This course must be undertaken within 180 days before filing the bankruptcy petition. The counseling session aims to educate the debtor on budgeting, managing money, and exploring alternatives to bankruptcy. A certificate of completion from this course is a required document for filing. Approved agencies can be found through official government resources. The cost for this pre-filing course typically ranges from $20 to $50.

Preparing Your Bankruptcy Petition: Required Information and Documentation

Compiling accurate and comprehensive financial information and documentation is a crucial phase before filing a bankruptcy petition. The court requires a detailed snapshot of an individual’s financial standing, which includes all assets, liabilities, income, and expenses.

Debtors must provide an exhaustive list of all property owned, categorized as assets. This includes real estate, vehicles, bank accounts, investments, retirement accounts, household goods, and other personal possessions. An estimated current market value is required for each asset. Information about secured debts, like mortgages or car loans, including creditor name, account number, and outstanding balance, should also be provided.

A complete listing of all liabilities is also necessary, encompassing credit card debt, personal loans, medical bills, and student loans. For each debt, the creditor’s full name, address, account number, and approximate amount owed must be accurately reported.

Detailed income and expense information is also a mandatory part of the petition. All income sources, such as wages, self-employment earnings, benefits, pensions, and rental income, must be disclosed for the past six months. Monthly living expenses, including housing costs, utilities, food, transportation, medical expenses, and insurance premiums, must be itemized.

Finally, debtors must disclose recent financial transactions, including any significant payments made, transfers of property, or sales of assets within a specific timeframe prior to filing. The look-back period for such transactions is generally 90 days for ordinary creditors and one year for payments to “insiders” like family members or business partners. For potentially fraudulent transfers, this period can extend up to two years.

To support the petition, several specific documents must be gathered:
Pay stubs for the 60 days preceding the filing.
Bank statements for the past two to three months.
Federal and state tax returns for the most recent two years (Chapter 7) or four years (Chapter 13).
Proof of asset ownership, such as deeds and vehicle titles.
Statements for all debts.
A valid Social Security card and photo identification.
The certificate from the mandatory pre-filing credit counseling course.

Navigating the Bankruptcy Process After Filing

Once the bankruptcy petition and all supporting documents are prepared, they are officially submitted to the bankruptcy court, initiating the legal process. This marks the formal commencement of the bankruptcy case, triggering a series of procedural steps to manage the debtor’s financial affairs.

An immediate and significant effect of filing for bankruptcy is the implementation of the “automatic stay.” This legal injunction temporarily halts most collection actions against the debtor, including lawsuits, wage garnishments, and collection calls related to credit card debt. The automatic stay provides debtors with immediate relief from creditor pressure.

Following the filing, a bankruptcy trustee is appointed to oversee the case. The trustee reviews submitted documents, verifies financial information, and identifies any assets for liquidation in Chapter 7 cases. For Chapter 13 cases, the trustee also manages the distribution of payments under the repayment plan.

A mandatory “Meeting of Creditors,” also known as the 341 meeting, is typically scheduled about 30 to 45 days after the petition is filed. This meeting is not a court hearing; the trustee presides, placing the debtor under oath to answer questions about their financial affairs. Creditors may attend and ask questions, though they rarely do. Debtors should bring their photo identification and Social Security card.

Another mandatory requirement, which must be completed after filing but before the discharge of debts, is a debtor education course. This personal financial management course focuses on providing debtors with financial literacy and money management skills. It typically takes about two hours to complete and costs between $10 and $50. This course must be completed through an agency approved by the U.S. Trustee Program.

For Chapter 13 cases, a confirmation hearing for the proposed repayment plan is held after the 341 meeting, typically within 60 to 90 days. At this hearing, the court reviews the plan for feasibility and compliance. Once confirmed, the debtor begins regular payments to the trustee according to the plan, typically over three to five years.

The final stage of the bankruptcy process is the “discharge of debt.” This is a court order that legally releases the debtor from personal liability for eligible debts, including most credit card debt. For Chapter 7 cases, the discharge usually occurs three to four months after filing. In Chapter 13, the discharge is granted after the successful completion of the entire repayment plan.