Should I Keep Paying Credit Cards Before Filing Bankruptcy?
You usually don't need to keep paying credit cards if you're filing bankruptcy soon. Chapter 7 wipes out credit card debt completely, while Chapter 13 includes it in your repayment plan. The money you save by stopping payments can cover essential living expenses instead.
Get Free ConsultationPlanning to file bankruptcy soon? You probably don’t need to keep paying your credit cards. In Chapter 7, credit card debt gets wiped out completely. In Chapter 13, your debt gets included in a court-approved repayment plan. Either way, continuing payments often wastes money you need for essentials.
Why Most People Stop Paying Credit Cards Before Bankruptcy
Credit card balances get discharged in a successful Chapter 7 bankruptcy case. Making payments on debt that will disappear throws away money. You could use those funds for rent, utilities, or food instead.
Find Out if Bankruptcy Is Right for You
Stop wasting money on credit card payments that will disappear in bankruptcy. Speak with a bankruptcy attorney today to understand your options and start fresh.
Qualify for Chapter 7Chapter 7 bankruptcy gives you a fresh start by erasing unsecured debts. Credit cards fall into this category. If you’re filing Chapter 13, your credit card payments get rolled into your monthly plan anyway.
Many bankruptcy filers struggle to make ends meet. You might face a choice between credit card bills and living expenses. Stopping credit card payments frees up cash you desperately need.
What Happens When You Stop Making Credit Card Payments
You’ll likely receive collection calls and letters. Late fees might appear on your account. Your credit score may drop as late payments get reported to credit bureaus.
These short-term consequences feel stressful but won’t matter much long-term. Bankruptcy addresses the debt and stops collection efforts. Once you file your bankruptcy petition, the automatic stay protects you from collectors immediately.
After your case gets discharged by the bankruptcy court, you can start rebuilding your credit. Most filers recover faster than expected.
Paying Off Credit Cards Before Bankruptcy Can Backfire
Bankruptcy laws prohibit preferential payments to any single creditor. Paying off a credit card could count as preferential treatment.
You must list any payment of $600 or more to a single creditor within 90 days before filing. The bankruptcy trustee can force the creditor to return that money. The funds don’t come back to you, though. The trustee divides them among all your unsecured creditors.
Better to use that money for your living expenses or bankruptcy filing fee instead.
Can You Keep a Credit Card With a Zero Balance?
Probably not. Creditors typically close all your credit card accounts when you file bankruptcy. Even paid-off or current accounts get shut down.
Why? Creditors face stiff penalties for violating the automatic stay. They close accounts to avoid accidentally sending statements or accepting payments. Federal sanctions aren’t worth the risk.
You can’t hide bankruptcy from credit card companies either. Bankruptcy filings are public records. Credit card issuers monitor this activity regularly. Your cardholder agreement allows them to close accounts when you file.
Good news: after your bankruptcy discharge, you can get new credit cards. Many people receive offers shortly after their case closes.
How the Automatic Stay Protects You
The automatic stay stops creditors from taking any collection action against you. Protection begins the moment you file bankruptcy.
The automatic stay blocks:
- Collection phone calls and letters
- Lawsuits and court judgments
- Wage garnishments
- Vehicle repossessions
- Bank account levies
Protection lasts until your bankruptcy case gets discharged or dismissed. When you receive your discharge, credit card debt and other unsecured debts like medical bills disappear. You no longer owe them.
Your credit card debt gets discharged whether you owe $5 or $5,000. No benefit exists to making payments before filing. Use that money for essential expenses instead.
Other Ways to Handle Credit Card Debt
Bankruptcy isn’t your only debt-relief option. Several alternatives might work depending on your situation.
For Smaller Debt Amounts
If you owe less than $10,000 in credit card debt, start with a budget. Consider the debt snowball or debt avalanche method. Debt consolidation works well for high-interest credit cards. You streamline monthly payments and potentially pay less over time with a lower interest rate.
For Larger Debt Amounts
If you owe more than $10,000 or need additional help, explore debt settlement or a debt management plan. Debt settlement usually requires a lump-sum payment around 50% of your total debt. This works best when you’re already behind on payments. Settlement appears as a negative mark on your credit report.
A debt management plan (DMP) runs 3-5 years and streamlines repayment with lower interest rates. You work with a credit counselor who helps sort out your finances. Our partner Cambridge Credit Counseling offers free consultations for debt management plans. Note that creditors typically close your credit card accounts as part of a DMP.
Making the Right Choice for Your Situation
Credit card debt usually gets wiped out completely in bankruptcy. Most people planning to file stop making payments because they know the debt will disappear. The automatic stay protects you from collection activities as soon as you file.
Your credit score may dip temporarily when you stop paying. But many people find rebuilding easier after getting their bankruptcy discharge. You start with a clean slate instead of drowning in monthly payments.
Ready to explore your options? Speak with a bankruptcy attorney for free to understand whether Chapter 7 or Chapter 13 makes sense for your situation.