Americans owe nearly $1 trillion in credit card debt. And most are worried they can't pay it back. Maybe you, too, are overwhelmed by such debt and are contemplating bankruptcy.

The American Bankruptcy Institute says credit card debt is one of the most common forms of debt discharged or eliminated in bankruptcy. But is bankruptcy a good option?

It can be, but it's not always the best fit. Before taking that drastic financial measure, first scrutinize the implications of doing so. Spoiler: Filing for bankruptcy for credit card debt should only be used as a last resort.

What is bankruptcy?

Bankruptcy is a legal process where you declare to your creditor that you cannot repay your debt. It involves court-supervised proceedings of liquidating assets and distributing the proceeds to creditors.

Or, alternatively, creating a plan to repay the debts over a specified period.

Chapter 7 and Chapter 13 are the most common types of bankruptcy, and each has specific requirements and consequences.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy allows you to restructure and repay your debt through a court-approved repayment plan over a period of three to five years.

It’s not a viable option if you don’t have a steady income to make payments, or if you wish to immediately eliminate credit card debt. In that case, a better option might be filing for Chapter 7 bankruptcy.

Chapter 7 ​​Bankruptcy

This type of bankruptcy involves selling assets to pay creditors. Once debts are discharged, you are freed from your financial obligations and are granted a fresh start.

Does this type of bankruptcy clear credit card debt? Yes, debt typically eliminated includes credit card debt, personal loans, medical bills, utility bills, and some types of judgments and tax debts.

Reasons for not filing bankruptcy for credit card debt

Sounds great, right? File for Chapter 7 bankruptcy, and your credit card debt vanishes.

Except it's not quite that simple. When you file for bankruptcy, all your debt becomes part of your petition.

You have to include all debt

You cannot simply decide to clear just your credit debt and expect home loans and vehicle payment plans to remain unaffected. Bankruptcy laws do not allow for the selective elimination of debt.

All creditors are treated equally, regardless of the type of debt they hold. If credit card debt were the only debt eliminated, it would defeat the purpose of bankruptcy.

You could lose your house and car

Depending on your level of debt and your state's laws, your home and car may become a non-exempt asset if it has equity or value above a certain amount.

For example, let's say you live in a state where a homestead exemption limit for Chapter 7 bankruptcy is $100,000, and your home's market value is $150,000, giving you $50,000 equity in your home.

In this scenario, your home would become a non-exempt asset because your equity is above the exemption limit. This means that the bankruptcy trustee can sell your property to pay off your creditors.

On the other hand, if your home only has a market value of $80,000, it would be exempt because it's value is below $100,000. In this case, you would not have to sell your home to pay off debt.

Home exemptions differ by state, with some exempting 100% of a home's value and others offering a fixed amount. To find the most suitable exemption, you should consult a real estate attorney.

Your credit score plummets

Filing for bankruptcy for credit card debt involves compromise. It eliminates debt but will likely decrease your credit score by as much as 200 to 500 points, signaling to lenders you are a risky borrower.

And there's more. The adverse impact to your credit score can last for seven to 10 years, until the three major credit bureaus (Experian, Equifax, and TransUnion) remove it from your report.

While this does not automatically disqualify you from obtaining credit for that period, it will be more difficult until you can improve your credit rating. Even then, any credit you are able to obtain may have a higher interest rate and less than favorable terms.

You can’t discharge all credit card debt

Sometimes, discharging credit card debt through bankruptcy is not possible, especially if a creditor disagrees and decides to take legal action through an adversary proceeding.

Non-dischargeable debt incudes luxury goods. If you charge $675 or more on your credit cards for luxury goods or services within 90 days of filing for Chapter 7 bankruptcy, the court might determine that the debt cannot be eliminated.

This is because luxury items (such as jewelry and artwork) are considered non-exempt assets and can be sold by the bankruptcy trustee to pay off your creditors.

Using your credit card to pay for child support, alimony, back taxes, or private student loans will also not erase your debt because credit card companies may object to the discharge of these debts.

Reasons for filing for bankruptcy for credit card debt

Should you find yourself swamped by credit card debt, along with other debts, and you meet the following criteria, filing for Chapter 7 bankruptcy may be a pragmatic solution:

  • You have more than $10,000 in debt
  • Your credit score is below 600
  • You do not have expensive assets or property
  • Debt payments are causing significant strain on your monthly budget
  • You are worried about collection agencies deducting money from your salary or facing a debt collection lawsuit
  • You do not see a feasible way to pay off your debt within the next five years

Chapter 7 bankruptcy eligibility

If, after the above considerations, you decide to file for bankruptcy, you will still need to meet the qualification requirements:

  • Credit counseling: You must complete an approved course within 180 days prior to filing
  • Income limits: Your average monthly income for the past six months must be lower than the median income for a household of the same size in your state, or you must successfully pass a means test
  • No recent bankruptcies: You can't have filed for bankruptcy during the past six years

Should you not meet the qualifications, you may be able to file for Chapter 13 bankruptcy or explore other debt-relief options such as debt consolidation or negotiating with your creditors.

Other ways to pay off credit card debt and avoid bankruptcy

Say you’re not in dire straits but desperately want to minimize or completely get rid of your credit card debt. Following are a couple of strategies for doing so.

The snowball method

With the snowball method, you start by paying the minimum amount due on each credit card but put any extra funds toward the account with the smallest balance.

Once that account is paid off, you take the amount you were paying toward it and direct it toward the next smallest balance. You continue this pattern until all your accounts are paid off.

The avalanche method

This tactic is like the snowball technique, but with one difference: Instead of prioritizing paying off your account with the smallest balance, you will concentrate on the account with the highest interest rate.

The avalanche technique often leads to greater savings on interest. The exact amount saved will vary based on the balances and interest rates of your accounts.

This method is best for minimizing interest but requires discipline in prioritizing larger debts. In comparison, the snowball technique is ideal for paying smaller debts and can be helpful if you are struggling to manage payments. It's also psychologically encouraging to see debts paid off.

Debt consolidation

Another option is to combine multiple credit card debts into a single payment using a personal loan (aka debt consolidation). Based on your credit history, you may be eligible for a lower interest rate than your current payments.

Personal loans offer a fixed repayment plan to help you stay organized and on top of your payments. Plus, with a lower interest rate, you may be able to pay off your debts faster.

Balance transfer credit card

A balance transfer card allows you to move your debt from one credit card to another, taking advantage of an introductory 0% APR for a specific period, typically 12 months or longer.

Remember that there may be upfront fees for both options, so be sure to carefully compare and choose the most cost-effective option for your needs.

Debt Settlement

If you're struggling with monthly payments, consider debt settlement as an alternative to bankruptcy. It involves hiring a company to negotiate with creditors on your behalf.

During the process, you make payments to an escrow account set up by the company until there is enough of a balance that they can use it to negotiate with credit card companies.

Keep in mind this may have negative effects on your credit score, and you will likely have to pay the company a fee of 10% to 25% of the total debt, so it should only be considered if bankruptcy is your only other option.


Numerous factors influence how quickly you can pay off your credit card debt. Although bankruptcy may be a viable option, it's just one of the many tools available.

If you need extra guidance, consider non-profit counseling to tap into a range of resources and experts ready to help you get out of debt and improve your credit score over time.

Don't let shame hold you back from taking control of your financial future. With some careful consideration and guidance, you can pave the path to financial freedom.