How Chapter 13 Bankruptcy Deals with Credit Card Balances
Credit card debt can quickly spiral out of control, especially when paired with other financial obligations like medical bills, car loans, or mortgage arrears. If you’re feeling overwhelmed and are considering bankruptcy, understanding how Chapter 13 bankruptcy handles credit card balances can help you make informed decisions. Unlike Chapter 7, which discharges debts quickly through asset liquidation, Chapter 13 provides a structured repayment plan—giving you the opportunity to catch up without losing everything.
Understanding Chapter 13 Bankruptcy
Chapter 13 bankruptcy is often referred to as a “wage earner’s plan” because it allows individuals with regular income to develop a plan to repay all or part of their debts over a three- to five-year period. It’s ideal for people who have assets they want to protect or who don’t qualify for Chapter 7 bankruptcy due to income limits.
How Credit Card Debt Is Treated
Credit card debt is considered unsecured debt in bankruptcy, which means it’s not backed by collateral (unlike a mortgage or car loan). Here’s how it’s addressed in Chapter 13:
1. Included in the Repayment Plan
Your credit card balances will be consolidated into your Chapter 13 repayment plan. Based on your disposable income, you’ll make monthly payments to a bankruptcy trustee, who then distributes the funds to creditors.
2. Payment Amount Depends on Your Financial Situation
You may not have to pay the full credit card debt. The amount paid depends on:
- Your income and expenses
- The value of your non-exempt assets
- The total amount of priority and secured debts
Unsecured creditors like credit card companies may only receive a small percentage of what you owe—sometimes as little as 10% or even less.
3. Interest and Late Fees Stop Accruing
Once your case is filed, an automatic stay goes into effect, stopping creditors from charging additional interest or late fees. Collection calls and lawsuits must also stop immediately.
4. Debt Discharge After the Plan
If you successfully complete your repayment plan, any remaining balances on your unsecured debts—including credit cards—are discharged. That means you’re no longer legally obligated to pay them.
Benefits of Handling Credit Card Debt Through Chapter 13
- Protection from lawsuits and wage garnishments
- Structured, manageable payments
- Relief from aggressive collection tactics
- Opportunity to retain valuable assets like your home or car
Common Questions About Credit Cards in Chapter 13
Can I keep using my credit cards?
No. Once you file for Chapter 13, you won’t be able to use existing credit cards. In fact, credit card accounts are usually closed as part of the bankruptcy process.
What if I used my cards recently?
Using credit cards within 90 days of filing—especially for luxury items—can be seen as fraudulent. It’s best to avoid charging any purchases once you’ve decided to pursue bankruptcy.
Will my co-signers be affected?
In Chapter 13, co-signers may still be liable unless you pay the full debt through your plan. If protecting a co-signer is important, your attorney can help structure the plan accordingly.
Is Chapter 13 Right for You?
While Chapter 13 can effectively reduce or eliminate credit card debt, it’s not the right choice for everyone. It requires a steady income and the ability to commit to a multi-year repayment plan. Consulting with an experienced bankruptcy attorney is the best way to evaluate your options.
Final Thoughts
Credit card debt doesn’t have to control your life. Chapter 13 bankruptcy offers a structured path to financial recovery and long-term stability. If you’re struggling with overwhelming balances and want to protect your assets while regaining control, professional guidance can make all the difference.
DeLuca & Associates Bankruptcy Law is here to help you understand your rights and navigate the bankruptcy process with confidence. Contact us today to explore whether Chapter 13 is the best solution for your financial future.
Business Name – DeLuca & Associates Bankruptcy Law
Phone Number: (702) 252-4673
Website: https://www.deluca-associates.com/
Address: 4560 S. Decatur Blvd. Suite 302, Las Vegas, NV 89103