With their enticing commercials and low interest rate introductory offers, credit cards are easy to obtain but sometimes difficult to eliminate. Unfortunately, many Americans have to rely on credit cards as a financial stop gap when falling on hard times, while others use credit cards due to mismanagement of available funds. Before they know it, borrowers may rack up tens of thousands of dollars in high interest credit card debt. For this reason, credit card companies are sometimes viewed as complicit in this dilemma. Fortunately, bankruptcy may present relief to those who are burdened with credit card debt. Depending on your individual circumstances, bankruptcy may present a path toward both eliminating your credit card debt and getting a fresh financial start. Here’s more about how bankruptcy affects credit card debt, and how you can better manage your overall financial picture.

Is Bankruptcy Right For Me In Getting Rid Of Credit Card Debt?

As you may know, there are several forms of bankruptcy. The most popular forms for individuals who file bankruptcy (individual filers) are Chapter 13 and Chapter 7. It is not uncommon for filers of both of these forms of bankruptcy to have credit card debt. Nevertheless, based on your income, assets and various financial obligations, bankruptcy may not be right for you.

In fact, if credit card debt is your main concern, debt consolidation or negotiation may be a better fit in eliminating or reducing your outstanding balance. Before determining how you will proceed, it is recommended that you consult with a bankruptcy attorney to understand how it may impact your financial future and what consequences bankruptcy may have on your credit worthiness.

Chapter 7 Bankruptcy And Credit Card Debt

Chapter 7 is a form of bankruptcy that can involve the discharge (elimination) of certain financial obligations. What many people do not know is that not all bankruptcy filers are eligible for Chapter 7. Specifically, there are maximum income requirements and other financial qualifiers. Stated another way, individual filers with significant monthly income may not qualify for Chapter 7.

Chapter 7 seeks to give filers a fresh financial start by allowing for the discharge of certain unsecured debt. As most credit cards are considered unsecured debt (debt that is not backed by an asset), they may be discharged in Chapter 7. However, not all credit card debt is unsecured debt. Some cards are secured by collateral and may not be discharged through Chapter 7.

Critically, Chapter 7 will most likely severely impact your credit score, making it difficult for you to receive future lines of credit or loans. In fact, most filers of Chapter 7 experience a reduction in their credit score that lasts for up to ten years.

Chapter 13 Bankruptcy And Credit Card Debt

For those who are not eligible for Chapter 7, Chapter 13 is the most common form of bankruptcy. This form of bankruptcy is also known as wage-earner bankruptcy as it will require you to have steady income to make payments on your restructured obligations. Chapter 13 operates differently from Chapter 7 in that it typically involves a consolidation of your debt and required monthly payments toward all or a portion of your overall liabilities.

Those with credit card debt who file for Chapter 13 may see a reduction in their overall obligation, and in some scenarios, a complete discharge. While complete elimination of credit card debt may be rare, Chapter 13 offers you a reorganization of debt and a potentially viable structured repayment plan that can enable you to get back on your feet.

However, like Chapter 7, Chapter 13 will negatively affect your credit score. But since Chapter 13 provides a path toward repayment of your obligations, it will only be on your credit report for seven years – not ten years like with Chapter 7. Finally, if you have certain assets like a home that you want to keep, Chapter 13 will permit you to hold onto your property as long as you pay your unsecured creditors an amount that is equal to the value of your nonexempt assets. This could mean that you will have to pay back all of your credit card debt depending on the value of your property and on those of your assets that you want to maintain ownership of.

Additional Considerations

While filing for bankruptcy to eliminate credit card debt may work for you, it should not be your first line of defense. If you can afford to pay off your credit cards – even if it is going to take several years – then paying those cards off over time could make more sense than pursuing bankruptcy. Eliminating recurring monthly bills that are not absolutely necessary may free up the income to pay down your debt.

Finally, if you file for bankruptcy, then you’ll have to take financial education courses which apprise you of the options that are available to you in resolving your outstanding liabilities. These courses, in conjunction with the counsel of an attorney, are invaluable in discovering the road that you should take in resolving your financial problems.

Florida Bankruptcy Lawyers Can Help

Lingering credit card debt can certainly take a toll on your peace of mind, but it does not have to be that way.  If you have significant credit card debt that you are struggling to pay off, you have options. While bankruptcy may be one of them, do not discount other viable means of regaining your financial footing. Discover the avenues toward your financial freedom by consulting with an experienced bankruptcy attorney. These attorneys will be able to guide you on how you can eliminate or reduce your debt without destroying your credit worthiness.

If you are thinking of filing for bankruptcy, modifying your mortgage, or are facing overwhelming credit card or student loan debt, The Bankruptcy Team, PLLC can help you. Our experienced attorneys will thoroughly review your situation and advise you about meaningful solutions.  To consult with The Bankruptcy Team, PLLC, call or contact us today.