Can You File Bankruptcy on Credit Cards Only?

Bankruptcy offers a legal pathway for individuals to address overwhelming debt and achieve a financial fresh start. It is a comprehensive legal process that handles a person’s entire financial situation, not just specific obligations like credit card debt. Therefore, it is not possible to file bankruptcy on credit cards alone, as the process encompasses all eligible debts.

The Comprehensive Nature of Bankruptcy

Bankruptcy operates on the principle of providing a broad financial reset, requiring the disclosure of all assets and liabilities. This legal framework ensures equitable treatment among creditors by preventing debtors from selectively choosing which debts to eliminate. All debts, whether secured or unsecured, must be listed in the bankruptcy petition.

Secured debts are obligations backed by specific collateral, such as a home for a mortgage or a vehicle for an auto loan. If payments on a secured debt are not made, the creditor can repossess or foreclose on the collateral. Unsecured debts are not tied to any collateral and include common obligations like credit card balances, medical bills, and personal loans. Creditors for unsecured debts cannot seize specific property without first obtaining a court judgment.

How Credit Card Debt Is Treated in Bankruptcy

Credit card debt is typically classified as unsecured, non-priority debt in bankruptcy proceedings. This means it is generally treated differently than secured debts or priority unsecured debts like certain taxes or child support. The way credit card debt is handled depends on the specific type of consumer bankruptcy filed, primarily Chapter 7 or Chapter 13.

In a Chapter 7 bankruptcy, credit card debt is usually discharged, meaning the debtor is no longer legally obligated to repay it. This form of bankruptcy aims to eliminate most unsecured debts within a few months, assuming the debtor meets eligibility criteria such as passing the means test. While rare, creditors can object to the discharge of credit card debt if they believe it was incurred fraudulently.

Alternatively, in a Chapter 13 bankruptcy, credit card debt is typically included in a court-approved repayment plan that spans three to five years. Debtors in Chapter 13 often pay only a portion of their credit card balances, or sometimes none, depending on their disposable income and the plan’s structure. Any remaining credit card debt is discharged upon successful completion of the repayment plan. This type of bankruptcy allows individuals with regular income to repay debts while keeping their assets.

What Happens to Other Financial Obligations

When bankruptcy is filed, it impacts all financial obligations, not just credit card debt. Secured debts, such as mortgages and car loans, are generally not discharged if the debtor wishes to retain the asset. To keep a home or car, the debtor typically must continue making payments and, in some cases, reaffirm the debt. The personal liability for the debt may be discharged, but the lien on the property remains, allowing the lender to repossess or foreclose if payments cease.

Other unsecured debts, including medical bills and personal loans, are usually treated similarly to credit card debt. These debts are typically discharged in Chapter 7 bankruptcy or included in the repayment plan under Chapter 13, often receiving only partial payment or no payment. Many common assets, such as a portion of home equity, a vehicle, clothing, and tools necessary for work, are protected by exemptions, allowing debtors to keep them during the bankruptcy process.

However, certain debts are non-dischargeable, meaning they generally cannot be eliminated through bankruptcy. Common examples include most student loans, recent tax obligations, and domestic support obligations like child support and alimony. Debts incurred through fraud or for willful and malicious injury are also typically non-dischargeable.

Overview of the Bankruptcy Filing Process

The bankruptcy filing process involves several distinct steps.
Initial consultation with a bankruptcy attorney to assess the financial situation and determine the most suitable course of action.
Completion of a pre-bankruptcy credit counseling course from a government-approved organization. This counseling session typically lasts about 60 to 90 minutes and focuses on managing money, debts, and developing a budget. A certificate of completion is issued, valid for 180 days, requiring the bankruptcy petition to be filed within that timeframe.
Preparation and filing of the bankruptcy petition with detailed schedules listing all assets, liabilities, income, and expenses. All debts and assets must be disclosed in these documents.
Attendance at a “Meeting of Creditors,” also known as a 341 meeting, approximately 21 to 50 days after filing. This meeting, conducted by a bankruptcy trustee outside of court, involves the trustee and potentially creditors asking questions under oath to verify the information.
Completion of a pre-discharge debtor education course, which is a personal financial management session. This course helps debtors develop strategies for financial health post-bankruptcy.

Upon successful completion of all requirements, eligible debts are discharged, providing the individual with a fresh financial start.