When to Stop Paying Credit Cards and File for Bankruptcy

If you can't afford your credit card payments, bankruptcy might be a good option.

Updated by , Attorney · University of the Pacific McGeorge School of Law

Filing for bankruptcy is not a decision to take lightly. But once you've decided to move forward, paying certain debts—such as credit cards—becomes a waste of money. Whether it's time to stop making payments will depend on:

  • whether you can afford to pay back the debt
  • if you've verified that you qualify for bankruptcy
  • whether you're sure you want to file for bankruptcy, and
  • if a bankruptcy lawyer has given you the go-ahead.

Unless you've done all of the above, not paying your credit card bills could put you in a worse financial position. Find out about these and other considerations.

Keep Paying Credit Cards If Bankruptcy Isn't Needed

When contemplating bankruptcy, the first thing to consider is whether you can afford to pay off your credit cards. Why? Because if you make enough money to do so, you probably won't qualify for Chapter 7 bankruptcy. The court requires filers with significant disposable income to pay some or all of your credit card debt through a Chapter 13 repayment plan. Plus, a bankruptcy filing will remain on your credit report for seven to ten years. So it's best to consider all available options first.

Don't Stop Paying Credit Cards Until You Know You Want to File

How do you know that a bankruptcy filing will be a good idea? Here are some clues.

Are You Being Sued or Harassed?

If you stop making payments on your credit cards, you'll typically begin receiving numerous calls from the credit card company or its agents. The more delinquent you are, the more frequent and harassing the calls will become. For most people, the constant harassment from debt collectors leads them to consider bankruptcy relief.

Depending on your assets and the amount of debt you owe, the credit card company (or a debt collection agency) could decide to bring a lawsuit to collect its debt. If the credit card company obtains a money judgment against you, it will be able to garnish your wages or go after your assets to satisfy the debt. If you're facing a lawsuit or the credit card company isn't willing to work with you, it might be time to consider your bankruptcy options.

Learn about stopping a credit card lawsuit with bankruptcy.

How Much Property Do You Own?

In both Chapter 7 and Chapter 13 bankruptcy, a debtor can protect or "exempt" property using bankruptcy exemptions. Bankruptcy exemptions vary from state to state. What happens to "nonexempt" property that isn't protected will depend on the bankruptcy chapter you file. So you'll want to review your state's exemption laws and consider the bankruptcy chapter.

Here's how it works.

In Chapter 7 bankruptcy, the bankruptcy trustee will sell your nonexempt assets and use the funds to pay back your creditors. If you own a lot of property that you can't protect with a bankruptcy exemption, filing for Chapter 7 bankruptcy might not be in your best interest.

By contrast, if you file for Chapter 13 bankruptcy, you can keep all of your property. But you'll have to pay your unsecured creditors (like credit card companies) an amount equal to the value of your nonexempt assets. The good news is that you don't have to pay it all at once. You'll pay it over three to five years, depending on the length of your repayment plan.

Don't Stop Paying Credit Cards Before Qualifying for Bankruptcy

In most cases, if you're qualified to file for bankruptcy, making credit card payments is like throwing money down the drain. But if you're still undecided or might not file your case for a long time, stopping your credit card payments can cause unnecessary damage.

Also, before you stop paying your credit card debt, you'll want to be sure that you qualify for bankruptcy. Once you stop, fees add up quickly, and if you don't file, it might be hard to bring your accounts current. So you'll want to confirm that you pass the Chapter 7 means test—the test required to qualify for Chapter 7. Otherwise, you might have to file for Chapter 13—and qualifying for Chapter 13 isn't a given, either. Funding a Chapter 13 repayment plan can be too costly for many filers.

Learn more by reading Should I Stop Paying Creditors If I'm Going to File for Bankruptcy?

Speak With a Bankruptcy Lawyer

This article discusses just a handful of issues you'll need to consider before filing for bankruptcy. Planning for bankruptcy takes careful research and consideration if you intend to file yourself. In most cases, you'll do well to retain the services of a knowledgeable bankruptcy lawyer. And if you're worried that you can't pay for an attorney, keep in mind that it's common to stop making credit card payments and use the funds to pay attorneys' fees instead—once you're sure you can file, of course.

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