Credit card debt in America has become a significant issue. The total amount of credit card debt nationwide recently surged past $1.28 trillion, and with average interest rates hovering above 21%, many people are finding their minimum credit card payments barely create a dent in the balance. For some, the math simply doesn’t work anymore.
When debt becomes insurmountable, bankruptcy may enter the conversation. Filing for bankruptcy isn’t a simple decision, and the reality is often more nuanced than the stigma suggests. It exists because lawmakers recognize that people sometimes face financial situations they can’t reasonably escape.
However, bankruptcy can have heavy consequences. Below, we’ll examine what to consider if you’re wondering whether bankruptcy might be the answer to your debt problems.
Should I file for bankruptcy for credit card debt?
Bankruptcy can be a legitimate path forward for people facing overwhelming credit card debt, but it’s not a universal fix. You’ll see two main types to consider: Chapter 7 and Chapter 13.
Chapter 7 is the faster option, potentially discharging unsecured debt like credit cards within a few months. To qualify, you’ll need to pass a means test, meaning your income must fall below your state’s median or meet other criteria. Chapter 13 reorganizes debt into a three- to five-year repayment plan.
Filing for bankruptcy is often most appropriate when repayment is no longer realistically possible. It may make sense if:
- Your credit card debt far exceeds your income.
- You’re facing lawsuits or wage garnishment. Filing for bankruptcy triggers an automatic stay, which can stop collection lawsuits and wage garnishments.
- You’ve already fallen seriously behind, and your accounts are charged off.
- You have few (or no) non-exempt assets.
Note that the credit impact is real and lasting. Bankruptcy stays on your credit report for seven to 10 years, depending on the chapter filed.
filing for bankruptcy may not be the right call if:
- Your debt is manageable with adjustments.
- Your hardship is temporary.
- You have significant assets at risk.
- You qualify for alternative relief.
What other options should I consider instead?
For people considering bankruptcy, a few alternatives are worth exploring. Debt settlement involves negotiating with creditors to pay a lump sum less than what you owe. It damages your credit, but can resolve large balances for less. A debt management plan through a credit counseling agency offers a more structured approach, lowering interest rates and consolidating payments.
The bottom line
Bankruptcy isn’t a failure, but a legal tool for those in financial distress. It comes with long-term consequences, making it worth exhausting alternative options first. Consulting with a bankruptcy attorney, a debt relief expert, or a credit counselor can provide clarity about your options.
