Home Debt Bankruptcy

Walking Away From Debt Vs. Filing Bankruptcy

Bankruptcy can rid you of your credit card debt but it does come with consequences.

credit card debt
Updated July 8, 2024
Written by Rachel Alulis
Here at MoneyFor, our goal is to help you make informed financial decisions. We are committed to accuracy and impartiality in all our content. It’s important to note that articles may reference products from our partners who compensate us. This influences which products we feature and their presentation on our site, not our evaluation.

Key takeaways

  • Defaulting on your debt usually occurs before filing for bankruptcy.
  • Bankruptcy can offer a fresh start and discharge most, if not all, of your credit card debt.
  • You can file either Chapter 7 or Chapter 13, depending on what you owe and your disposable income.

A delinquent account can be one of the first indicators of serious financial problems. The more credit card bills pile up that you can’t pay, the more tempting it is to walk away from your debt. In other words, default. The thing is, defaulting won’t solve all your problems. To get a clean slate and a fresh start, you may be better off declaring bankruptcy on credit card debt.

Let’s explore how defaulting can lead to bankruptcy for credit card debt and what both entail.

Jump to:

Understanding secured and unsecured debt

There are two different types of debt: secured debt and unsecured. Secured debt is backed by collateral, meaning lenders have a claim on an asset if you default. Common examples are mortgages and auto loans. If you fail to make payments, the lender can repossess the asset to recover the owed amount.

Unsecured debt, on the other hand, is not backed by any specific asset. Credit cards, medical bills, and personal loans fall into this category. Lenders rely on your promise to repay and may resort to legal action if you default.

Do you need a loan now?

Find the right same day loans for you!

What happens when I default?

When you first miss payments on your loan or credit card, your account is considered delinquent. The lender will likely charge a late fee, send you reminders, and may even call. As you continue to miss payments, you will be considered in default and the consequences will intensify.

Credit score impact of defaulting

When you’re 30 days late, the credit card company will report your missed payment to the credit bureaus, dropping your score by 15 to 80 points. Every subsequent missed payment will be reported, further dragging your score down. Missed payments stay on your credit report for up to seven years, though the impact lessens over time.

Debt collection actions

At 90-120 days past due, the credit card company will likely close your account and sell it to a debt collection agency. These agencies are known for their persistent phone calls, letters, and emails. If these attempts fail, collection agencies may take you to court. A debt collection lawsuit can result in wage garnishment, bank account levies, or property liens. Additionally, having an account in collections will be reported to credit bureaus, further damaging your score.

9.7
Moneyfor score

Pay Back Less Than What You Owe

  • FREE Consultation
  • Reduce your debt
  • Lower Interest rates

Pay Back Less Than What You Owe

Apply Now
Review 12,985

How to declare bankruptcy

Declaring bankruptcy can provide a fresh start and it can protect you from debt collection lawsuits and other legal actions if you’re already in default.

Here’s how to file bankruptcy on credit cards:

  1. Consult an attorney: Bankruptcy law is complicated. A lawyer ensures you file correctly and most attorneys offer a free consultation.
  2. Gather financial documents: Collect information on your debts, income, expenses, and assets. This includes credit card statements, bank statements, tax returns, and pay stubs.
  3. Credit counseling: Complete a mandatory session from an approved agency within 180 days before filing.
  4. File the petition: Submit a bankruptcy petition to the court along with schedules of assets, liabilities, and other financial details.
  5. Attend the 341 meeting: This meeting with creditors allows them to ask questions about your financial situation and plan.
  6. Complete debtor education: Before debts can be discharged, complete a debtor education course.

There is no such thing as bankruptcy for credit card debt only; when you declare bankruptcy, you do so on all your debts.

Qualifications for filing bankruptcy

Before filing bankruptcy on credit cards, you’ll need to determine if you meet the qualifications.

For Chapter 7 bankruptcy, you must pass a means test. The test compares your income from the previous six months to the median income in your state. If your income is below the median, you qualify. If it’s above, you may still qualify. Deduct essential expenses (housing, food, clothing, transportation, utilities, etc.) from your income and see if there is enough left to pay your debt. If there isn’t, you can file for Chapter 7.

If you don’t qualify for Chapter 7, you may qualify for Chapter 13. Chapter 13 requires that you have enough income to pay down your debt. Your secured debt must be less than $1,257,850, and your unsecured debt must be less than $419,275.

How much should you owe to file for bankruptcy?

Find out how much debt you need for bankruptcy.

Chapter 7 bankruptcy for credit card debt

Chapter 7 bankruptcy, often referred to as “liquidation bankruptcy,” aims to discharge most unsecured debts, including credit card debt.

Bills that can be discharged include:

overdue credit card bills
  • Credit card bill
  • Medical bills
  • Utilities
  • Personal loans
  • Old rent payments
  • Phone bills

When you file Chapter 7, your assets will be sold, and the proceeds used to repay creditors. Assets you need to live, such as your house, car, and clothing, will not be sold. Non-exempt property includes a second house or vehicle, art, and luxury items.

Exceptions for eliminating debt with Chapter 7 bankruptcy

Not all debts can be discharged. You will still be expected to pay child support, alimony, most back taxes, student loans (except in cases of undue hardship), fines or penalties owed to government agencies, and debt obtained through fraud.

Fraud could be making false statements to get a credit card or using your card to purchase more than $725 in luxury items or services within 90 days of filing. Luxury items are anything that is not essential for living. It’s also considered fraud if you take out a cash advance of $1,000 within 70 days of filing.

Credit card debt on high-end purchases such as appliances, furniture, or jewelry may also not be discharged. Instead, the creditor may consider the item collateral and ask for it to be sold. You may be able to wipe out the debt, but you will not be able to keep the property.

Credit card debt from paying for non-dischargeable debts

Since most credit card debt is dischargeable, it may seem like a good idea to pay non-dischargeable debts (child support, taxes) with your card. Do not do this. These transactions will be classified as fraudulent and you will not be able to discharge them.

Chapter 13 bankruptcy for credit card debt

Chapter 13 bankruptcy is often referred to as “reorganization bankruptcy.” It offers a structured way to manage and repay bills without liquidating assets.

With Chapter 13, you submit a repayment plan based on your monthly income. Plans normally take three to five years and cover repaying most, if not all, of your debt.

A court trustee must approve the plan. Once you’ve made all the required payments, the rest of your debts will be discharged. Most people only pay a portion of their total credit card debt.

Learn more on MoneyFor!

What happens after filing bankruptcy?

After filing, an automatic stay is enacted, halting most collection activities, including phone calls, lawsuits, wage garnishments, and foreclosures.

Chapter 7: A trustee is appointed to review your case, liquidate non-exempt assets, and distribute the proceeds to creditors. Most of your unsecured debts will be discharged within a few months.

Chapter 13: You will work with a trustee to implement a court-approved repayment plan, consolidating all you owe into manageable monthly payments over three to five years. Once the plan’s complete, the remaining unsecured debts will be discharged.

There are severe consequences for having credit card debt discharged. Your score will drop by 100 to 200 points. If you already have delinquent accounts and are considering not paying, your score has likely already taken a hit. This will bring it down further.

Additionally, Chapter 7 stays on your credit report for up to ten years and Chapter 13 for up to seven years. The good news is that the further you get from filing, the less impact it has on your score.

Should I keep paying my credit cards after filing for bankruptcy?

There is no point in continuing to payments after you file. Paying can actually complicate bankruptcy proceedings. Instead, focus on adhering to the guidelines set by the court and your attorney for a successful discharge.

Can credit card companies sue me after I file for bankruptcy?

Once you file, an automatic stay is enacted, preventing creditors from suing you or continuing existing lawsuits. It remains in effect throughout the bankruptcy process. This legal protection halts most collection actions, including lawsuits, wage garnishments, and calls.

Searching for emergency cash?

We have solutions! Discover the best bad credit emergency loans.

Are there credit card debts that I can’t erase with Chapter 7 bankruptcy?

While Chapter 7, often referred to as credit card bankruptcy, can discharge most credit card debts, there are exceptions. Fraud, using a credit card for non-dischargeable debts, and luxury purchases or cash advances made shortly before filing will not be dischargeable.

Can I file Chapter 7 bankruptcy without an attorney?

Filing without a bankruptcy attorney is not recommended. The laws and procedures are complex, and a single mistake can lead to your case being dismissed or debts not being discharged. An attorney provides expertise and help you understand exemptions and protect your assets. While hiring an attorney involves costs, the investment can significantly increase the chances of a successful outcome.

Can I file Chapter 7 bankruptcy to erase credit card debt?

A common question that arises is, “Can you file bankruptcy on credit cards?” The answer is yes. Almost all credit card debt can be discharged through bankruptcy. The process involves liquidating non-exempt assets to pay creditors, but many personal assets are protected under exemption laws.

Read more about credit cards!

Alternatives to bankruptcy for credit card debt

Bankruptcy is a legal proceeding with major consequences. Before you go this route, consider alternatives.

  1. Debt consolidation: Rolls multiple credit card balances into a single loan with a lower interest rate. You have one manageable bill and pay save money.
  2. Debt management plan: Work with a certified credit counselor to develop an affordable repayment plan. They can negotiate lower interest rates and waive fees with creditors.
  3. Debt settlement: Negotiate with creditors to accept a lump-sum payment that is less than the full amount. You may save money but your score will likely drop significantly.
  4. Borrow from family or friends: Loans from family or friends at little to no interest can help pay off high-interest debt.
  5. Balance transfer credit card: Transfer high-interest credit card balances to a card with a lower interest rate or an introductory 0% APR period.

Not every debt relief option is right for every situation. Take a look at your finances and talk with a credit counselor to determine the best strategy for you. Initial consultations are typically free.

Frequently asked questions

1. What debt is not forgiven in a straight bankruptcy?

Debts that cannot be discharged include most student loans, child support, alimony, most back taxes, and fines or penalties owed to government agencies. Debts incurred through fraud or malicious actions are also typically not forgiven.

2. Can credit card debt be written off in bankruptcy?

Yes, Chapter 7, in particular, is designed to clear most unsecured debts, including credit cards. However, it’s important to understand that not all credit card debts are dischargeable, especially if incurred through fraud.

3. How to get rid of credit card debt without filing for bankruptcy?

Consider a debt management plan, debt consolidation, or negotiating a lump-sum payment with creditors. Budgeting and reducing expenses can also accelerate repayment.

4. What happens if I can’t catch up with my credit card payments but don’t file bankruptcy?

Creditors will charge additional late fees and penalty interest rates. They will likely sell the account to a collection agency that may sue you. Debt collection lawsuits can result in wage garnishments or liens on your property.

Bottom line

Bankruptcy for credit card debt provides a structured way to reset your finances, whether through Chapter 7’s liquidation process or Chapter 13’s repayment plan, but it still contains the stigma of financial failure.

Is bankruptcy bad? It is not inherently bad. It is a legal tool designed to provide relief and a fresh start. It’s true that it should be considered a last resort, but it’s better than continuing to walk away from your financial obligations.

If you decide that bankruptcy is the best course of action, consult with a lawyer for help navigating the process and rebuild your financial life.

1. Paycheck Advance is For eligible customers only. Your actual available Paycheck Advance amount will be displayed to you in the mobile app and may change from time to time. Conditions and eligibility may vary and are subject to change at any time, at the sole discretion of Finco Advance LLC, which offers this optional feature. Finco Advance LLC is a financial technology company, not a bank. Expedited disbursement of your Paycheck Advance is an optional feature that is subject to an Instant Access Fee and may not be available to all users. Expedited disbursements may take up to an hour. For more information, please refer to Paycheck Advance Terms and Conditions.
2. Current is a financial technology company, not a bank. Banking services provided by Choice Financial Group, Member FDIC, and Cross River Bank, Member FDIC. The Current Visa® Debit Card is issued by Choice Financial Group pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa debit cards are accepted. The Current Visa® secured charge card is issued by Cross River Bank pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa credit cards are accepted. Please see the back of your Card for its issuing bank. Current Individual Account required to apply for the Current Visa® secured charge card. Independent approval required.
3. Individual results may vary. Using your credit card responsibly may allow you to improve your credit score. Credit building depends on various factors, including your payment history, credit utilization, length of credit history, and other financial activities.
4. Faster access to funds is based on comparison of traditional banking policies and deposit of paper checks from employers and government agencies versus deposits made electronically. Direct deposit and earlier availability of funds is subject to timing of payer’s submission of deposits.
5. Current is a financial technology company, not a bank. Banking services provided by Choice Financial Group. Funds held in Savings Pods are FDIC-insured on a pass-through basis up to $250,000 at our partner bank Choice Financial Group, member FDIC
6. Actual overdraft amount may vary and is subject to change at any time, at Current’s sole discretion. In order to qualify and enroll in the Fee-Free Overdraft feature, you must receive $500 or more in Qualifying Deposits into your Current Account over the preceding 30-day period. For more information, please refer to Fee-free Overdraft Terms and Conditions.
7. You may earn Points in connection with your everyday spending and by completing other actions that Current designates as subject to the Current Points Program. The amount of Points granted for different actions as well as the purchase requirements necessary to earn Points will vary, and is subject to Current’s sole discretion. After qualifying, please allow 3-5 business days for points to post to your Current account. The Current Points program is not available to Teen Account holders. See Current Points Terms and Conditions.
8. Some fees may apply, including out of network ATM fees of $2.50 per transaction, late payment fees of 3% of any total due balance outstanding and past due for two or more billing cycles, foreign transaction fees of 3% of the full transaction amount (minimum $0.50), card replacement fees per card of $5 for regular delivery and $30 for expedited delivery, cash deposit fees of $3.50 per deposit, and third party processing fees.
9. Boost Bonuses are credited to your Savings Pods within 48 hours of enabling the Boost feature and on a daily basis thereafter, provided that the Savings Pod has accrued a Boost Bonus of at least $0.01. The Boost rate on Savings Pods is variable and may change at any time. The disclosed rate is effective as of August 1, 2023. Must have $0.01 in Savings Pods to earn a Boost rate of either 0.25% or 4.00% annually on the portion of balances up to $2000 per Savings Pod, up to $6000 total. The remaining balance earns 0.00%. A qualifying direct deposit of $200 or more is required for 4.00%. No minimum balance required. For more information, please refer to Current Boost Terms and Conditions.
10. Cryptocurrency services are powered by Zero Hash LLC and Zero Hash Liquidity Services LLC, and may not be available in all states. Terms and conditions apply. When you buy or sell cryptocurrency, a difference between the current market price and the price you buy or sell that asset for is called a spread. However, unlike most other exchanges Current does not charge an additional trading fee. Cryptocurrency transactions are a form of investment, and all investments are subject to investment risks, including possible loss of the principal amount invested. Cryptocurrency is not insured by the FDIC or any other government-backed or third-party insurance. Your purchase of cryptocurrency is not a deposit or other obligation of, or guaranteed by, Choice Financial Group or Cross River Bank. The cryptocurrency assets in your Zero Hash account are not held at Current, Choice Financial Group, or Cross River Bank. Current, Choice Financial Group, and Cross River Bank are not responsible for the cryptocurrency assets held in any Zero Hash account. Neither Current, Choice, nor Cross River Bank is involved in the purchase, sale, exchange of fiat funds for cryptocurrency, or custody of the cryptocurrencies. Terms and Conditions apply (platform and user agreements). Crypto on Current is not currently available in HI. Licensed to engage in Virtual Currency Business Activity by the New York State Department of Financial Services. This does not constitute investment advice.
11. Current is a financial technology company, not a bank. Banking services provided by Choice Financial Group. Your money is FDIC-insured on a pass-through basis up to $250,000 at each of our partner banks, Choice Financial Group and Cross River Bank, members FDIC.
12. Average value based on Fine Hotels + Resorts bookings in 2023 for stays of two nights. Benefits include daily breakfast for two, room upgrade upon arrival when available, $100 amenity, guaranteed 4PM late checkout, and noon check-in when available. Certain room categories not eligible for upgrade. $100 amenity varies by property. Actual value will vary based on property, room rate, upgrade availability, and use of benefits.
13. Up to $500 per Covered Trip that is delayed for more than 6 hours; and 2 claims per Eligible Card per 12 consecutive month period. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by New Hampshire Insurance Company, an AIG Company.
14. The maximum benefit amount for Trip Cancellation and Interruption Insurance is $10,000 per Covered Trip and $20,000 per Eligible Card per 12 consecutive month period. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by New Hampshire Insurance Company, an AIG Company.
15. Baggage Insurance Plan coverage can be in effect for Covered Persons for eligible lost, damaged, or stolen Baggage during their travel on a Common Carrier Vehicle (e.g. plane, train, ship, or bus) when the Entire Fare for a ticket for the trip (one- way or round-trip) is charged to an Eligible Card. Coverage can be provided for up to $2,000 for checked Baggage and up to a combined maximum of $3,000 for checked and carry-on baggage, in excess of coverage provided by the Common Carrier. The coverage is also subject to a $3,000 aggregate limit per Covered Trip. For New York State residents, there is a $2,000 per bag/suitcase limit for each Covered Person with a $10,000 aggregate maximum for all Covered Persons per Covered Trip. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by AMEX Assurance Company.
16. Car Rental Loss and Damage Insurance can provide coverage up to $75,000 for theft of or damage to most rental vehicles when you use your eligible Card to reserve and pay for the entire eligible vehicle rental and decline the collision damage waiver or similar option offered by the Commercial Car Rental Company. This product provides secondary coverage and does not include liability coverage. Not all vehicle types or rentals are covered. Geographic restrictions apply. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by AMEX Assurance Company. Car Rental Loss or Damage Coverage is offered through American Express Travel Related Services Company, Inc.
17. Coverage for a Stolen or damaged Eligible Cellular Wireless Telephone is subject to the terms, conditions, exclusions, and limits of liability of this benefit. The maximum liability is $800, per claim, per Eligible Card Account. Each claim is subject to a $50 deductible. Coverage is limited to two (2) claims per Eligible Card Account per 12 month period. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by New Hampshire Insurance Company, an AIG Company.
18. When an American Express® Card Member charges a Covered Purchase to an Eligible Card, Extended Warranty§ can provide up to one extra year added to the Original Manufacturer’s Warranty. Applies to warranties of five (5) years or less. Coverage is up to the actual amount charged to your Card for the item up to a maximum of $10,000; not to exceed $50,000 per Card Member account per calendar year. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by AMEX Assurance Company.
19. Purchase Protection is an embedded benefit of your Card Membership and requires no enrollment. It can help protect Covered Purchases made on your Eligible Card when they’re accidentally damaged, stolen, or lost, for up to 90 days from the Covered Purchase date. The coverage is limited to up to $10,000 per occurrence, up to $50,000 per Card Member account per calendar year. Coverage Limits Apply. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by AMEX Assurance Company.
20. Chime is a financial technology company, not a bank. Banking services provided by The Bancorp Bank, N.A. or Stride Bank, N.A., Members FDIC.
21. The secured Chime Credit Builder Visa® Card is issued by Stride Bank, N.A., Member FDIC, pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa credit cards are accepted.
22. Banking services and debit card provided by The Bancorp Bank N.A. or Stride Bank, N.A., Members FDIC, pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa debit cards are accepted.
23. The Annual Percentage Yield (“APY”) for the Chime Savings Account is variable and may change at any time. The disclosed APY is effective as of September 20, 2023. No minimum balance required. Must have $0.01 in savings to earn interest.
24. There’s no fee for the Chime Savings Account. Cash withdrawal and Third-party fees may apply to Chime Checking Accounts. You must have a Chime Checking Account to open a Chime Savings Account.
25. To apply for Credit Builder, you must have received a single qualifying direct deposit of $200 or more to your Chime Checking Account. The qualifying direct deposit must be from your employer, payroll provider, gig economy payer, or benefits payer by Automated Clearing House (ACH) deposit OR Original Credit Transaction (OCT). Bank ACH transfers, Pay Anyone transfers, verification or trial deposits from financial institutions, peer to peer transfers from services such as PayPal, Cash App, or Venmo, mobile check deposits, cash loads or deposits, one-time direct deposits, such as tax refunds and other similar transactions, and any deposit to which Chime deems to not be a qualifying direct deposit are not qualifying direct deposits.
26. Money added to Credit Builder will be held in a secured account as collateral for your Credit Builder Visa card, which means you can spend up to this amount on your card. This is money you can use to pay off your charges at the end of every month.
27. Based on a representative study conducted by Experian®, members who made their first purchase with Credit Builder between June 2020 and October 2020 observed an average FICO® Score 8 increase of 30 points after approximately 8 months. On-time payment history can have a positive impact on your credit score. Late payment may negatively impact your credit score.
28. On-time payment history may have a positive impact on your credit score. Late payment may negatively impact your credit score. Chime will report your activities to Transunion®, Experian®, and Equifax®. Impact on your credit may vary, as Credit scores are independently determined by credit bureaus based on a number of factors including the financial decisions you make with other financial services organizations.
29. Early access to direct deposit funds depends on the timing of the submission of the payment file from the payer. We generally make these funds available on the day the payment file is received, which may be up to 2 days earlier than the scheduled payment date.
30. SpotMe® on Debit is an optional, no fee overdraft service attached to your Chime Checking Account. To qualify for the SpotMe on Debit service, you must receive $200 or more in qualifying direct deposits to your Chime Checking Account each month and have activated your Visa debit card. Qualifying members will be allowed to overdraw their Chime Checking Account for up to $20 on debit card purchases and cash withdrawals initially but may later be eligible for a higher limit of up to $200 or more based on Chime Account history, direct deposit frequency and amount, spending activity and other risk-based factors. The SpotMe on Debit limit will be displayed within the Chime mobile app and is subject to change at any time, at Chime’s sole discretion. Although Chime does not charge any overdraft fees for SpotMe on Debit, there may be out-of-network or third-party fees associated with ATM transactions. SpotMe on Debit will not cover any non-debit card transactions, including ACH transfers, Pay Anyone transfers, or Chime Checkbook transactions. SpotMe on Debit Terms and Conditions.
31. Tipping or not tipping has no impact on your eligibility for SpotMe®.
32. Out-of-network ATM withdrawal fees may apply except at MoneyPass ATMs in a 7-Eleven, or any Allpoint or Visa Plus Alliance ATM.
33. Save When I Get Paid automatically transfers 10% of your direct deposits of $500 or more from your Checking Account into your savings account.
34. Round Ups automatically round up debit card purchases to the nearest dollar and transfer the round up from your Chime Checking Account to your savings account.
35. Mobile Check Deposit eligibility is determined by Chime in its sole discretion and may be granted based on various factors including, but not limited to, a member’s direct deposit enrollment status.
36. Funds are automatically debited from your Checking Account and typically deposited into the recipient’s Checking Account within seconds. Pay Anyone transactions will be monitored and may be held, delayed or blocked if the transfer could result in fraud or another form of financial harm. Sometimes instant transfers can be delayed.
37. Pay Anyone transactions will be monitored and may be held, delayed or blocked if the transfer could result in fraud or another form of financial harm. Sometimes instant transfers can be delayed. Non-Chime members must use a valid debit card to claim funds.
* EarnIn is not available for Connecticut residents
Read more

About the author

Rachel Alulis

Rachel Alulis has been the lead editor for Moneyfor’s credit cards team since 2015 and for the financial rewards team since 2023. Before joining Moneyfor, Rachel worked at USA Today and the Des Moines Register. She then established a successful freelance writing and editing business specializing in personal finance. Rachel holds a bachelor’s degree in journalism and an MBA.

Read more