Paying Off Credit Card Debt v. Filing for Bankruptcy

CreditCard2ASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I am making my credit card payments on time, but they are a substantial amount each month. Would it be a good idea to file for Chapter 13 bankruptcy to pay them back? Would that look better on my credit report than if I filed for Chapter 7 bankruptcy? And will the credit card accounts have to be closed once they’ve been paid in full, or will I get to keep them? 



Dear Wally,

I predict you’re going to feel great by the time you finish reading the bankruptcy advice I have for you.

The Credit Card Debt Trap

You make your credit card payments on time, but you don’t see any progress in getting them paid off. You are not the only person in this situation, and that’s because of credit card interest. Consider this: If you have a balance of $5,000 on your credit card and are paying 14% APR, it will take you 22 years to pay it off. That assumes you always make the minimum requested payment, on time.

Can I cheer you up some more? Over that 22-year period, you will end up paying a whopping $5,887 in interest, on top of the original $5,000 balance. That’s a total of $10,887 to buy something that cost only $5,000. (And it’s likely that whatever you bought is long gone by the time you pay off the balance.)

Paying the Debt Off Outside of Bankruptcy

So what’s the best way to avoid this scenario? My first choice for you would be to avoid bankruptcy by paying the debt down yourself. To do this, however, you’ve got to make more than the minimum payment each month.

Let’s go back to the example above. Let’s say your minimum monthly payment on the balance was $100.  If you paid $240 per month, you would pay the debt off in just two years. You’d still pay $761 in interest, but you’d save yourself 20 years of debt payments, and $5,126 in interest.

(For tips and strategies to get out of high credit card debt, visit Nolo’s Managing Credit Card Debt topic area.)

Discharging the Debt in Bankruptcy

If you can’t step up your monthly payments, and you have no better alternative, bankruptcy can be a great way to deal with debts. It’s true that bankruptcy will damage your credit. However, almost all of my clients already had miserable credit by the time they began considering bankruptcy. Thus, they had nothing left to lose.

Keep this in mind though:  If good credit is extremely important to you, then do not file any kind of a bankruptcy case. If getting out of debt is more important than your credit, you should consider Chapter 7 or Chapter 13 bankruptcy. Your credit will look the same regardless of which chapter you file. The credit card accounts will remain closed, even if you pay them back under Chapter 13.  (To learn more about what happens to credit card debt in bankruptcy, visit Nolo’s Credit Card Debt and Bankruptcy topic area.)

For further guidance on your particular situation, consult with one or two experienced bankruptcy lawyers. You should be able to find lawyers who will give you free consultations.


Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer. 

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