Attorney at Debt Advisors Law Offices
Practice Areas: Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, Stop Foreclosure
Filing for Chapter 7 bankruptcy often feels like pressing a financial reset button. For many people buried under credit card bills, it raises one central question: what happens to those cards and the debt attached to them?
Understanding how Chapter 7 affects your credit cards is important before taking this major legal step. It determines whether your balances are wiped out, what happens to your credit report, and how soon you can start rebuilding your credit. This guide breaks down what really happens behind the scenes, from how the court treats your credit card debt to what you can expect in the months after discharge.
If you’re weighing the pros and cons of Chapter 7 or wondering how it might impact your financial future, reading further will help you make informed, confident decisions.
Chapter 7 bankruptcy is often referred to as “liquidation bankruptcy.” It eliminates most unsecured debts, including credit card balances, personal loans, and medical bills. Unsecured debts have no collateral, which means credit card companies cannot take property like your home or vehicle when you default.
When you file, an automatic stay under 11 U.S.C. §362 stops all collection activity. Creditors can no longer call, sue, or garnish your wages. Once the court grants a discharge, you are no longer legally obligated to pay credit card debts included in your case.
Secured debts, like car loans, are handled differently. These involve collateral and may require reaffirmation or surrendering the asset. Credit card debt, being unsecured, is usually wiped out completely unless fraud is suspected.
Most credit card accounts are closed automatically once you file for Chapter 7. Lenders receive notice from the court and must stop extending new credit. Even cards with no balance are often closed as part of standard bank policy.
If you have a secured credit card, such as one backed by a deposit, you may be able to keep it by reaffirming the account, though this is uncommon. Reaffirmation means agreeing to repay the debt after bankruptcy and is only allowed if approved by the court.
Your credit utilization ratio and overall credit score will change during this process. Initially, your score may drop because bankruptcy appears on your report, but most people see improvement within one to two years.
According to Experian (2024), individuals who file Chapter 7 typically see a credit score improvement of approximately 100 points within two years after discharge, depending on their payment habits and new credit management practices.
It is important to stop using credit cards once you decide to file for bankruptcy. The court can review charges made shortly before filing and sometimes declared non-dischargeable.
Under 11 U.S.C. §523(a)(2), luxury purchases made within 90 days before filing or cash advances taken within 70 days can be considered fraudulent and not be wiped out.
If you recently made large purchases or took cash advances, your bankruptcy attorney may recommend waiting before filing to avoid disputes. Using debit or cash during this period is safer and prevents conflicts with creditors.
After discharge, you can slowly rebuild your credit through secured credit cards, small personal loans, or consistent on-time bill payments. Responsible use of new credit demonstrates financial recovery and helps improve your score over time.
Chapter 7 bankruptcy remains on your credit report for 10 years, as outlined by the Fair Credit Reporting Act (15 U.S.C. §1681c(a)(1)). While this may sound concerning, many people see positive changes long before that period ends.
Creditors view post-bankruptcy borrowers differently. With old debts discharged, your debt-to-income ratio improves, making it easier to qualify for small lines of credit. You may even receive offers for secured cards or loans within a year.
Rebuilding credit after bankruptcy takes patience. Check your credit reports regularly using AnnualCreditReport.com, pay bills on time, and avoid taking on unnecessary debt.
“Discharging unsecured debt through Chapter 7 often provides the clean slate necessary for long-term financial stability.” — National Consumer Law Center.
|
Type of Credit Card Debt |
Example |
Dischargeable in Chapter 7? |
Notes |
| Regular Unsecured Credit Cards | Visa, Mastercard, Store Cards | Yes | Most are eliminated during discharge |
| Secured Credit Cards | Secured with deposit or collateral | Sometimes | May be reaffirmed or closed by lender |
| Recent Luxury Purchases | High-end goods within 90 days | No | Considered potentially fraudulent |
| Cash Advances | Within 70 days before filing | No | Typically non-dischargeable |
| Authorized User Accounts | Secondary user cards | Depends | Liability falls on the primary cardholder |
Once your debts are discharged, the focus shifts to rebuilding your financial life. Many people mistakenly believe they can never get credit again after bankruptcy, but that isn’t true.
Start small by applying for a secured credit card, where you deposit a small amount to set your credit limit. Use it for essentials, pay it off monthly, and build a positive credit history. Monitoring your credit report regularly ensures accuracy and helps you track your progress.
Setting a realistic budget also prevents falling back into debt. Focus on saving an emergency fund, paying bills promptly, and avoiding unnecessary borrowing. Over time, your score will improve, and lenders will view you as a more responsible borrower.
Most accounts are closed after filing. Some issuers may allow a new account to be opened after discharge; however, existing accounts are rarely kept open.
If you file individually, only your portion of the debt is discharged. Co-signers or joint users are still liable for the remaining balance.
Yes. Retail and department store credit cards are unsecured and are generally dischargeable under Chapter 7.
Many people receive secured credit card offers within six to twelve months after discharge, depending on their efforts to rebuild credit.
Yes. The automatic stay under 11 U.S.C. §362 prevents creditors from calling, sending letters, or filing lawsuits once your petition is filed.
Most credit card debt is discharged unless it involves fraud, recent luxury purchases, or other transactions that are not dischargeable.
Chapter 7 bankruptcy allows you to eliminate unsecured credit card debt and allows you to start fresh financially. While your credit accounts will be closed, and your score may initially drop, rebuilding begins soon after discharge. With discipline, many people restore their credit and financial confidence within a few years.
If you live in Wisconsin and are struggling with credit card debt, Debt Advisors Law Offices offers compassionate and informed guidance to help you understand your bankruptcy options and protect your financial future.
Learn about bankruptcy protections, types of bankruptcy, how to get started, what to expect, and who to trust. Filing bankruptcy is the ONLY way to completely eliminate debt. If bankruptcy is right for you, it offers powerful protections that cannot be achieved through alternative solutions such as hardship relief, loans, or debt settlement.
