Will Bankruptcy Stop Credit Card Collections?

Filing for bankruptcy will immediately stop all credit card collections and lawsuits, and will prevent a credit card company from initiating any new lawsuits.

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Filing for bankruptcy will immediately stop all credit card collections and lawsuits, and will prevent a credit card company from initiating any new lawsuits. This hiatus on collection, called the automatic stay, lasts while your bankruptcy is pending.

Bankruptcy's Automatic Stay

Because of the automatic stay, the moment that you file for Chapter 7 or Chapter 13 bankruptcy, all phone calls, emails, letters, and other demands for payment from a credit card company or collection agency must stop. All lawsuits must stop too. This means that once you file for bankruptcy, a credit card company cannot begin a lawsuit against you for past due bills, and if one has already been filed, that court proceeding must immediately come to a halt.

Chapter 7 Bankruptcy and Credit Card Co-Debtors

In a Chapter 7 case, the automatic stay applies only to the person who files for bankruptcy. It does not apply to co-debtors who have not filed for bankruptcy. This means that anyone else who is jointly responsible to pay your credit card debt (for example, your spouse, relative, friend, or any other person) will continue to be responsible for the credit card payments, unless that person filed for bankruptcy protection as well.

Chapter 13 Bankruptcy and Credit Card Co-Debtors

In a Chapter 13 case, if your credit card debt is considered to be a “consumer debt,” then your co-debtors will be protected by the automatic stay, even if they did not file for bankruptcy. Consumer debts include expenses for personal, family, or household purposes. Examples include: grocery bills, medical bills, and electric bills. Consumer debts do not include expenses incurred for the operation of a business, such as purchasing goods and supplies for a company that you may own.

How Long Does the Automatic Stay Last?

The automatic stay will remain in effect while your bankruptcy case is open. For Chapter 7 cases, it will usually take about three to four months for a case to be administered, and the automatic stay will remain in effect during that time. In Chapter 13 cases, your case may remain open for three to five years. Both you and your co-debtors will be protected by the automatic stay while your case is pending, if you continue to timely make your Chapter 13 plan payments.

Exception to the Rule: When the Stay Is Not Triggered or Ends Early

In some situations, the automatic stay only lasts 30 days, or does not go into effect at all.

Bankruptcy filing with one year. If you filed one bankruptcy case in the past year, and that case was dismissed, then the automatic stay will last only 30 days from the date you filed your bankruptcy case. You can extend this period if you show to the court that your bankruptcy was filed in good faith.

Two bankruptcies within one year. If you filed two or more bankruptcy cases in the last year, the automatic stay is not triggered. If you want the protection of the automatic stay, you must request it from the court and prove that your case was filed in good faith.

When the Credit Card Company Alleges Fraud

Sometimes a credit card company alleges fraud or misconduct against a debtor during the bankruptcy case, and seeks to have their debt survive bankruptcy. This is called a nondischargeability action. (Learn more about credit card debt and fraud in bankruptcy.

What Happens After I Receive a Bankruptcy Discharge?

The automatic stay is temporary, and terminates once your bankruptcy case is closed. If you receive a bankruptcy discharge upon the closing of your case, then typically, you will no longer be obligated to pay the credit card debt that you listed in your bankruptcy petition. This is because most credit card debt is considered general, unsecured debt, and will be discharged.

(To learn more, see Does Chapter 7 Bankruptcy Remove Credit Card Debt?)

Co-debtors who are jointly liable on the credit card account, on the other hand, will be responsible for any remaining balance on the credit card debt.

What if I Do Not Receive a Bankruptcy Discharge?

If you don't receive a bankruptcy discharge upon the closing of your case, or if your case is dismissed prior to receiving a discharge, then your credit card creditors may continue collection against you.

For more on what happens to credit card debt in bankruptcy, see Credit Card Debt in Bankruptcy.

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