Many people file for bankruptcy because they have racked up excessive credit card debt. Often the credit was used to pay for necessities, like car repairs or medical bills. Both Chapter 7 and Chapter 13 bankruptcy can wipe out credit card debt, with a few exceptions.
In Chapter 7 bankruptcy, most or all of your unsecured, nonpriority debt is discharged (wiped out). In return, you must give up nonexempt property so that the trustee can sell it and distribute the proceeds to your creditors. Credit card debt falls into the category of unsecured, nonpriority debt that is discharged. (Examples of priority debts that would not be discharged include child support and certain tax debts.)
In a few circumstances, the creditor can challenge the discharge of your credit card debt. If successful, the court will not discharge the debt. These situations include:
In rare situations, the credit card lender may take a security interest in some of your property in the credit card agreement. If this is the case, then the debt is not unsecured.
In Chapter 13 bankruptcy, you repay your creditors (some in full, some in part) through a repayment plan that lasts three to five years. The plan usually provides for payment of only a portion of your unsecured, nonpriority debt, like credit card debt. (How much you end up paying depends on several factors, including your "disposable income.") In fact, most Chapter 13 filers pay only a small percentage of their credit card and other unsecured debts. At the end of the repayment period, the remaining balance on your credit card debt is discharged.
In Chapter 7, you can file for bankruptcy and then reaffirm all of your debts other than your credit card debt. This would make you personally liable for those reaffirmed debts after the bankruptcy is over. It would be a rare situation, however, when this would make sense.
No. Once you file for bankruptcy protection, bankruptcy's automatic stay prohibits most creditors from continuing collection efforts against you. The stay extends to credit card companies, and prohibits them from suing you, sending you collection letters, calling you, or engaging in other collection activities. To learn more, see Bankruptcy's Automatic Stay.