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Filing Bankruptcy for Credit Card Debt

Credit card debt

Credit card debt is one of the main reasons people file bankruptcy, right behind medical bills. It has a way of going from manageable to completely overwhelming really quickly, and many folks find that once they've lost control of credit card debt it's basically impossible to pay it off. This is because late fees get added to your balance and your interest rates increase when you miss payments, making your financial struggles even more difficult.

In this blog, we explore what happens when you fall behind on credit card payments, we discuss how long it may take to pay off credit card debt, and we discuss how bankruptcy can help you get out of credit card debt. We also discuss how credit card debt is treated differently in different types of bankruptcy.

Why You Don't Want to Fall Behind on Credit Card Debt

Falling behind on credit card debt can have devastating consequences. Of course we all know that collections departments and debt collectors can be relentless and create a ton of stress with their constant calls and texts. We often overlook the immediate consequences that missing even one or two payments can have.

When Miss One Credit Card Payment

  • A late fee of up to $41 will be applied to your bill for the next month.

  • Any introductory lower interest rates are terminated. This can have a serious impact on folks who manage their debt by continually transferring their credit card debt from one card to another to avoid paying interest.

When You Miss Two Credit Card Payments

Will the Interest Rates Ever Go Back Down if You Miss Payments?

Yes, many credit card companies will lower your interest rate back to the original rate after you make six on-time payments of at least the minimum amount.

How Long Will it Take to Pay Off Credit Card Debt?

The best answer to this is the tried and true typical lawyer response, "It depends."

A lot of credit card billing statements include a calculation for how long it will take to pay off your balance if you continue making only minimum payments. We regularly see this number somewhere between 15 to 60 years, meaning that's how long it would take to repay that one credit card if you only made minimum payments each month. But keep in mind that missed payments lead to penalties and increased interest rates, which inevitably means it will take even longer to repay that credit card.

If you're feeling overwhelmed by credit card debt and can only make minimum payments each month, then it's likely that you're in a situation where it's going to take years and years to repay your credit card debt. If this is your situation, then it may be time to seriously consider what debt relief options you have available to you.

How to Get Out of Credit Card Debt

Struggling to get out of debt

Getting out of credit card debt can feel impossible when paying off the debt could take decades, but that doesn't mean that it's actually impossible to get out of credit card debt. The first step is to assess your current financial situation by creating a list of four calculations:

  1. First, make a list and calculate all of the income you receive in an average month

  2. Second, make a list and calculate all of your regular monthly expenses but don't include payments for debt except your mortgage and car payments. Make sure you include things like gas, groceries, school lunches, copays, and miscellaneous expenses like new jeans or shoes for your children (they always need something...)

  3. Next, make a list and calculate the minimum payments for all of your debt each month in an average month, but don't include your mortgage or car payment

  4. Finally, make a list and calculate the minimum payments plus interest for all of your debt each month in an average month, but don't include your mortgage or car payment

Once you have these four things calculated, subtract your expenses (#2) from your income (#1).

Balancing a Budget

If that number is negative then you are unable to make ends meet, and you need to review your expenses to see what you can cut and ask yourself if a higher paying job is a possibility. If you're left with a positive number that's great! It means you can afford your current lifestyle and have money left over.

Next you'll want to see if the amount you have left over is enough to pay what you calculated as your total minimum monthly payments (#3) or your minimum monthly payments plus interest (#4).

If you can't afford to pay minimum monthly payments (#3) then you're in a debt spiral and you need to seek help immediately because your debt is going to continue growing rapidly. If you can afford to pay minimum monthly payments plus interest (#4) then paying off your debt in a reasonable amount of time is a real possibility for you as long as you maintain your budget.

If you can afford to pay the minimum monthly payments (#3) but not the minimum monthly payments plus interest (#4), then seeking professional help may be a good idea to get greater insight into your financial situation and begin considering whether debt relief is right for you.

Can You File Bankruptcy on Credit Card Debt

Bankruptcy Court

Credit card debt is the second leading cause of bankruptcy filings, right behind medical debt.  The type of bankruptcy you file will determine how your credit card debt is treated, but the bankruptcy discharge in a Chapter 7 and a Chapter 13 typically eliminates credit card debt.

If you pass the means test and qualify to file Chapter 7 bankruptcy, then you can expect the legal process to last approximately four to six months from start to finish. If you file a Chapter 13 bankruptcy then your bankruptcy process will last three to five years and you'll have to successfully complete a repayment plan in order for your remaining debt to be discharged (the amount of debt that gets repaid in a Chapter 13 varies greatly from on bankruptcy case to the next). You should speak with an Austin bankruptcy lawyer or a local bankruptcy attorney in your area if you're considering bankruptcy.

What About Other Debt Relief Options

Debt Settlement to get rid of credit card debt

Aside from bankruptcy, there are other debt relief options available for individuals struggling with credit card debt. We discussed these options in greater detail in a previous blog, but here is a quick overview:

  • Debt Settlement: With this option, you pay a monthly payment to a debt settlement company while they attempt to negotiate a settlement with your creditors for an amount lower than what you owe. For this to work you must be delinquent on your debt, and the idea behind the monthly payments to the debt settlement company is to create an opportunity to pay some creditors a lump sum and be done, because more money now usually means you can pay less altogether. This option involves a lot of risk and uncertainty because creditors are under no obligation to negotiate, and many folks end up getting sued by creditors who aren't interested in settlement.

  • Debt Management: The first step in this process is credit counseling with a professional at a debt management company. The rest of the process is similar to debt settlement, except debt management companies don't typically attempt to negotiate down the principal at all. Instead, they focus on reducing or in some cases completely eliminating interest and penalties.

  • Debt consolidation: This option involves taking out a loan to pay off all of your debt so you can focus on making only one payment. This simplifies things and the idea is to get a lower rate of interest so can save money in the end. You should be careful to avoid taking secured debt consolidation loans, and you must be extremely disciplined and use the loan funds to pay off your existing debt.

Credit Card Debt in Chapter 7 vs Chapter 13 Bankruptcy

When it comes to credit card debt, there are significant differences between Chapter 7 and Chapter 13 bankruptcy laws.

What is Chapter 7 Bankruptcy?

Chapter 7 Bankruptcy

Chapter 7 bankruptcy involves getting rid of most unsecured debt in a relatively short amount of time. Although you file your bankruptcy petition with a United States Bankruptcy Court in the federal jurisdiction where you live, a case bankruptcy trustee oversees the process and administers the bankruptcy estate if there are any assets to liquidate. Bankruptcy exemptions are used to protect your property from being liquidated, but sometimes there are difficult decisions to make. Certain debts such as child support, certain tax debt, and most student loans, to name just a few, cannot be discharged in bankruptcy.

An important feature of all personal bankruptcies is the automatic stay, which stops all creditor harassment in its tracks by allowing debtors to pursue legal action against creditors who violate the stay.

It's important to work with an Austin bankruptcy lawyer or a local bankruptcy attorney near you to help you navigate the complex legal process.

What is Chapter 13 Bankruptcy?

Chapter 13 Bankruptcy

Chapter 13 bankruptcy, also known as the wage earner's bankruptcy because it involves a three to five year repayment plan. Unlike Chapter 7 bankruptcy, you can keep all of the property you can afford to pay for in a Chapter 13, and it allows folks to catch up on payments for secured property they've fallen behind on and are at risk of losing to foreclosure or repossession.


If you're overwhelmed by credit card debt and looking for a fresh start, filing bankruptcy is a helpful tool to eliminate debt and take control of your finances. Falling behind on credit card debt is often the start of a debt spiral that causes your debt and stress to increase rapidly together. Filing Chapter 7 or Chapter 13 helps you stop the debt spiral and the bankruptcy discharge eliminates your personal liability to repay most, and in many cases, all of your unsecured debt. The process of filing for bankruptcy involves more than transferring some personal information onto bankruptcy forms. Bankruptcy law is a combination of the bankruptcy code, federal and state law, and case law interpreting each of those things, all of which is to say that bankruptcy is a nuanced process and having a professional legal team and our Austin bankruptcy lawyer on your side is a good way to protect yourself and feel better about your journey to your fresh start.

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