Filing Bankruptcy on Credit Cards

Can I file bankruptcy on credit cards?

​Yes, you can file bankruptcy on your credit card debt. In fact, most bankruptcies that are filed include general unsecured debt such as credit card debt. An unsecured debt is one that is not attached to collateral. For example, an auto loan is secured by the automobile that was purchased using the auto loan funds. Most credit cards are unsecured.

How to file bankruptcy on credit cards?

​When a bankruptcy petition is filed, the bankruptcy schedules require that all debt is listed, including credit card debt. Since credit card debt is a general unsecured debt, in most cases, the requirement to pay the credit card debt will be discharged at the end of the bankruptcy proceeding.

Credit Cards and Chapter 7

There are many financial reasons that people file for chapter 7 bankruptcy relief including crushing credit card debt. Credit cards companies can require monthly payments that are greater than you can afford to pay and you end up having to use your credit cards for basic living expenses such as food and gas. Paying only the minimum payments required can cause you to get deeper into debt.

​Interest, finance charges and late fees can quickly add. Are you making minimum credit card payments payments and the amount you owe is not decreasing? This is a difficult trap to get out of. Unlike other unsecured debt such as personal loans, which have a fixed amount due each month and a defined end date, the payments on credit card debt is revolving and there is no end date until it is paid off. This can take years or even decades depending on how much is owed, the interest rate charged and the monthly amount you pay over the required minimum payment. A credit card company may even raise your interest rate if your payments are late or missed. Unpaid credit card payments can lead to collection attempts, lawsuits, money judgments and wage garnishments.

Discharging Credit Card Debt in Chapter 7

Once a chapter 7 is filed, the bankruptcy protection, also known as the automatic stay, kicks in and your creditors must stop collection activities. A chapter 7 bankruptcy will allow you to discharge the debt owed to your credit card companies and other unsecured creditors so that you will no longer be required to pay them each month thus freeing up cash for your living expenses. A chapter 7 will also discharge other unsecured debt. Once the Bankruptcy Court issues a discharge ​of debts, those creditors can no longer collect on the debt thus providing you with the fresh start you need.

Credit Cards and Chapter 13 Bankruptcy

​Credit card debt can also be included in a chapter 13 reorganization. A chapter 13 is a repayment plan that can be used to help people catch up on past due secured debt obligations such as mortgage payments, car payments and property taxes. Chapter 13 reorganizations can run between three and five years depending on a number of factors. General unsecured creditors such as credit card companies are not entitled to receive direct payments on their debts and are only entitled to receive a distribution under the chapter 13 reorganization plan  under certain circumstances. Upon completion of the chapter 13 proceeding, the Court will issue a discharge of debts and any unpaid balance owed to the unsecured creditors is no longer collectable.

Credit Cards after bankruptcy

​It is possible to obtain new credit after a bankruptcy discharge although it is unlikely that a credit card will be approved while a bankruptcy is pending. Some credit card companies offer secured credit cards. A secured credit card requires you to pay a certain amount of money to the credit card company which holds the funds a security for the credit line. If default on the credit card payment, the deposit will be used to pay it.  A secured card may be a good way to help rebuild your credit after a bankruptcy filing. Look for cards that have low deposit requirements and low interest rates. Be careful not to fall into the minimum payment trap again. Be sure to make timely payments and using the card only for items that you know you can afford to pay for at the end of the billing cycle.

How long after bankruptcy can I get a credit card?

​How long you can get a credit card after bankruptcy depends on a number of factors unique to your situation and the credit grantor’s requirements. It is unlikely that you will be approved for a credit card while your bankruptcy is pending. If you file a chapter 7, the proceeding usually takes about four to six months to conclude.The bankruptcy filing will initially harm your credit score. However,  you debt to income ratio should have drastically improced once your dischargeable debt is no longer owed. You can apply for credit anytime after the discharge is granted. Generally, it is easier to obtain a secured credit card after a bankruptcy filing than a regular unsecured credit card. In order to help rebuild your credit, it is imperative that you make your debt payments on time and not carry large balances on revolving debt.