Bankruptcy Is Not The End Of Your Financial Life
If you can no longer afford to pay your bills and you haven’t been able to negotiate better terms with your lender, then it may be time to consider bankruptcy. Don’t beat yourself up over it too much, Rao says.
Filing for bankruptcy is often seen as this admission that “I’m a failure,” but that’s not usually the case, he says. And while it’s a step most people don’t want to take, bankruptcy can provide a lot of relief if done right.
“It really does provide that fresh start,” Tadross says, adding that once your Chapter 7 bankruptcy is approved, or you receive a discharge in your Chapter 13 case, you’re completely debt-free.
Chapter 13 bankruptcies can stay on your credit report for three years, while Chapter 7 cases disappear after 10 years. But that won’t prevent you from getting approved for credit.
Quite the opposite, Tadross says, adding he usually advises clients that they will likely receive dozen pre-approved credit card offers within a week of completing their bankruptcy. Why? Because creditors know you’re debt-free and that you’re not going to be able to file for another bankruptcy for several years.
Debt can feel like an albatross around your neck, Tadross says, but you shouldn’t feel humiliated that you’re taking steps to rectify it through bankruptcy. “You’re just making arrangements to catch up on what you owe it’s not the end of the world,” he adds.
Will Applying For A Credit Card Hurt My Credit Score
When you apply for a credit card, issuers will check your credit report to see if you qualify. This check will be indicated on your report and may temporarily lower your score. This may feel like a catch-22 for people recovering from bankruptcy: you need a credit card to help repair your score, but applying for cards may actually hurt it. For this reason, we recommend you only apply to a secured card meant for people in your situation. That way, you’ll only need to apply once and you won’t have multiple credit checks listed on your report.
Other Actions A Creditor May Take After Obtaining A Judgment
State laws determine the legal steps a credit card company may take to collect a judgment debt. In some states, creditors are allowed to garnish your wages for judgments. Some states allow judgment holders to apply for supplemental proceedings to identify any personal property the judgment holder may seize to satisfy the debt.
The actions the credit card company takes to collect a judgment debt depends on the company. Some credit card companies and debt collectors pursue judgment debts aggressively. Thatâs because they can afford to have full-time attorneys working on their behalf. In some cases, a person could lose a substantial portion of his or her income in wage garnishments or lose property to satisfy a judgment debt.
I Have $23k Of Credit Card Debt Is Bankruptcy My Best Option
Q.I owe $23,000 on credit cards, and I cant keep up with the payments. The debt came from when I was out of work for nine months, but I have a good job now, I just make less money. Ive already tried negotiating with them to lower the interest rate, but they wont. Im thinking of filing for bankruptcy but I dont want to totally trash my credit. What do I need to think about before deciding?
A. Declaring bankruptcy is a big decision.
Most individuals seek relief either under Chapter 7 or Chapter 13 of the Bankruptcy Code, said Ilissa Churgin Hook, an attorney with Hook & Fatovich in Wayne, N.J.
In a Chapter 7 filing, a debtor seeks a discharge from his/her debts in exchange for exposing his/her assets to an examination by a third party trustee, who acts as a fiduciary for creditors, Hook said. One of the trustees obligations is to look for assets that have equity after taking into account the costs of sale, any liens against the asset, and any relevant bankruptcy exemptions and can be liquidated to pay creditors.
Hook said, assuming you qualify for a Chapter 7 bankruptcy, depending on your income and expenses, you would have the opportunity to achieve a Chapter 7 discharge, which Hook said would give you a fresh start. It would prevent the credit card companies that you currently owe money to from taking any further collection action.
Keeping Credit Cards After Your Bankruptcy
Many people find their credit card canceled even though they had a zero balance and the credit card was not included in their bankruptcy schedule.
Imagine six months after your bankruptcy has been discharged. Youve turned your financial situation around and there is no more worrying how you are going to pay your bills. Everything is on the up and up; youre budgeting well and have a little money to spend, so you decide to pick up the tab for a meal with some of your family, friends, or worse, your boss. Out of nowhere your credit card is denied. Your credit card has been canceled without warning by the creditor.
You wonder how this could be, because this credit card wasnt even included in the bankruptcy. The credit card had a zero balance on it so you werent required to list it on your bankruptcy schedule. What happens is your creditor caught wind of your bankruptcy and immediately canceled you in order to be protected. With Chapter 13 cases some creditors will cancel you on accounts that you paid off.
A similarly related issue is that some people find that their credit cards are listed as discharged under bankruptcy on their credit reports even though they worked hard to pay them off. They felt that keeping a remaining card in good standing would help them bounce back from their bankruptcy. Then the card ends up listed just like the others.
Why A Credit Card Company Will Cancel Your Card When You File For Bankruptcy
When preparing to file for bankruptcy, it is common for a potential filer to want to “exclude” a particular debt from the bankruptcy petition, such as a credit card used for work expenses or a beloved pet’s medical expenses. No matter how important the card might be, excluding debt is not an option when you file for Chapter 7 bankruptcy. Bankruptcy law requires you to list all of your debt on your bankruptcy petition, without exception. In other words, if you owe a creditor money, the creditor must appear on your petition.
This rule, however, goes a step further. Even if you don’t owe a balance on your credit card, you must still list it in your bankruptcy papers. A revolving credit card account is a type of contract, and your contracts are automatically canceled by bankruptcy, including credit cards, leases, and secured auto loans, to name a few. As a result, once your credit card company finds out about the bankruptcy and realizes that it no longer has a contract, it will cancel your card because it won’t be able to enforce any ongoing obligations. Simply put, without a valid agreement in place, the credit card company will not be able to make you pay for your purchases.
What Happens If My Credit Card Company Finds Out That I Filed For Bankruptcy
Clients are sometimes surprised to find out that even if they pay off one of their credit cards, the can still close the account if they find out about the recent bankruptcy filing. In fact, theyll probably find out about it through the credit bureaus or other reporting agencies. The danger is that even after struggling to get a credit card paid off before filing bankruptcy, the company may still decide that youre a higher credit risk now that you have a history that includes bankruptcy.
Be Careful With Cash Advances Before Filing
Cash advances on your credit card can also be a negative factor when you file for bankruptcy. The debt is not discharged if you take out over $950 in cash advances 70 days prior to filing for bankruptcy. This stands regardless if you use that advance for essentials or luxury purchases.
There is an exception for the cash advance penalty. For example, lets say you took out a cash advance to repay student loans. You then get diagnosed with a severe medical condition that renders you unable to work, so you file for bankruptcy. Because you are unable to repay this debt due to extreme hardship, it will be discharged. Note that if you took out the cash advance to pay your student loans intending to discharge the debt in bankruptcy, you can be sued for nondischargeability.
Connect with top-rated bankruptcy attorneys to make sure you avoid issues when you file.
However, if you can prove that the recent purchases are necessary items, such as heat for your home and medical expenses, those may qualify for discharge.
Bankruptcy Impact On Home
The good news about bankruptcy and your home is that you wont lose it as long as you can make payments.
Remember that the purpose of bankruptcy is to give you a chance for a fresh start and its a lot easier to start over if youre not homeless. Thats why bankruptcy laws make homes exempt from creditors claims.
But only if you can make the payments.
If living in a house you cant afford is part of the reason youre filing bankruptcy, then yes, you could lose your home.
In Chapter 7, if you fall behind making payments, you could seek protection for your home by filing Chapter 13 to allow you time to catch up. Or, you may have to throw in the towel and let the bank foreclose on you.
In Chapter 13, its far more complicated, but you essentially return to the default status you were in before declaring bankruptcy. That means creditors who have claims against you can go after you for payment.
What To Look For In A Credit Card After Bankruptcy
Think youre ready for a credit card but not sure what to look for? Here are the four essential elements of a credit card to consider post-bankruptcy:
1. Type of Credit Card
Traditional Credit Card
Traditional credit cards with all those nice perks like travel miles and rewards are probably not in your immediate future. Those types of cards typically require a higher credit score than the one youll bring to the table post-bankruptcy.
But if you consistently prove your credit worthiness after bankruptcy, you may be able to qualify for one within a couple of years.
Secured Credit Card
You can apply for a secured credit card and youll probably receive more offers for this type the same way you would for a traditional credit card.
If youre approved, youll be required to deposit cash upfront typically anywhere from $50 to $300 into an account with the lender, wholl hold the money and extend a matching line of credit.
After you prove you can consistently make full payments on time every month, the lender may convert your secured card into a traditional credit card.
Although you may receive many offers, you should double check that the offer is for a secured credit card rather than a prepaid debit card.
is great for usage, but is not going to be remotely helpful in rebuilding credit, said Anastasio. Make sure that it is actually a credit card or a secured card that is in fact reporting to the credit bureaus.
2. Interest Rate
3. Credit limit
4. Annual fees
How Using A Credit Card Can Help You After A Bankruptcy
With everything you have to consider in regards to credit cards, is it worth the bother?
If Bushs experience is any indication, the answer is a resounding yes.
After years of slowly building her credit and paying off the balance each month, she watched her credit score hit 850 in 2006.
That was a real proud moment for me, having started out with all of these medical bills and bankruptcy and what have you, she said.
If you need some extra help, we have even more ways to build credit and stay out of debt with your credit card.
Regardless of whether you choose to get a credit card, remember that the climb out of bankruptcy may be difficult, but its worth your time and effort.
Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder. Read her bio and other work here
A Bankruptcy Question From A Debtcom Reader
Question: In 1997, I declared bankruptcy after a terrible divorce. I was doing fine until I got laid off a few years ago. My problem is, when Im under stress, I like shopping therapy. It never really works but I keep doing anyway.
Even though I have a wonderful new job, it doesnt pay what my old one did, and I have more than $20,000 on various credit cards. Im getting angry calls from debt collectors, and the stress is making me lose my hair literally!
So Im considering bankruptcy again. I hear the law has changed, but its hard to figure it out by searching the Internet. Can you give me some advice?
Vanessa in Tennessee
Why Isnt A Credit Card Always A Creditor
A credit card isnt always a creditor because the bankruptcy code defines creditor as someone who has a claim for money against the debtor.
- If there is a balance on the card, then the credit card company has a claim for that balance, and is a creditor
- If there is no balance on the card, then the card company doesnt have a claim, and they are therefore not a creditor
So a card without a balance does not need to be listed in your bankruptcy, and the credit card company might decide to let you keep it open.
Talk To A Bankruptcy Lawyer
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Signs That Your Credit Cards Are Pointing You Towards Bankruptcy:
Is Credit Card Debt A Good Reason To File Chapter 7
Yes, Chapter 7 bankruptcy erases almost all credit card debt. So, if you owe far more than you think you can pay, Chapter 7 can likely help you get back on your feet and stay there.
If you are paying the minimum payments on your credit cards each month, it could take you 10 or 15 years to pay off the credit card debt, depending on the balances on your credit cards and the interest rate.
Paying the minimum payments on credit cards can cost you thousands of dollars that you do not have to pay. In addition, if you miss even one payment, the credit card company could raise your interest rate substantially. For most people, credit card debt is the main reason they need to seek debt relief.
However, a credit card company may obtain a personal judgment by filing a debt collection lawsuit. If the company is successful in obtaining a judgment, the credit card company may take actions to collect the debt that could affect your property and income.
Are You Being Sued Or Harassed
If you stop making payments on your credit cards, you’ll typically begin receiving numerous calls from the credit card company or its agents. The more delinquent you are, the more frequent and harassing the calls will become. For most people, the constant harassment from debt collectors leads them to consider bankruptcy relief.
Depending on your assets and the amount of debt you owe, the credit card company could decide to bring a lawsuit to collect its debt. If the credit card company obtains a money judgment against you, it will be able to garnish your wages or go after your assets to satisfy the debt. If you’re facing a lawsuit or the credit card company isn’t willing to work with you, it might be time to consider your bankruptcy options.
Learn about stopping a credit card lawsuit with bankruptcy.
Below Are A Few Credit Card Scams That Ever Post
Cell phones and digital cameras have become smaller and even more capable of taking very clear photos. Many scammers, some of them working in retail where they can have easy access to your credit card, will steal credit card information by taking a photograph of the back and front of your card. When using your credit card at any store make sure that you dont allow the clerk to leave the area with your credit card and make sure you keep sight of your credit card at all times.
Other scammers are using fake credit cards to increase the time between when they steal your credit card and you report it missing. How it works? Scammers take your credit card and then replace it with a fake that looks like your credit card while they take off with the real thing and charge up large amounts of debt. This can be particularly damaging for a post-bankruptcy debtor who is trying to rebuild his credit because credit cards only allow a certain window of time for a victim to report their credit card lost or stolen. If they dont report the credit card lost/stolen in that time frame they could liable for the charges.
Finally, fake fraud alert calls are on the rise. This scam involves the con-artist calling the victim and saying that they are calling from the fraud department of the credit card company. Once the con gets the victim on the phone they ask for the three digit card verification number on the back of the credit card. Remember, no credit card company will ask for that.
Should I File For Bankruptcy
If youre dealing with overwhelming debt, especially from credit cards, its time to pick up the phone and speak with a bankruptcy law firm. Wink & Wink are experts at bankruptcy in Colorado and will work to get you a positive outcome in your case so you can be back on your feet faster and better. Call Wink & Wink at 303-410-1720 or contact us online today.
Should I Even Get A Credit Card
If youre asking yourself whether you should get a credit card after bankruptcy, you might want to consider why youre asking yourself that question.
Your answer could help you decide whether a credit card is right for you, according to Certified Financial Planner Lauren Anastasio, a wealth advisor at SoFi, a personal finance company
Many individuals may face bankruptcy for reasons other than just not having responsible habits very frequently it may be someone who went through a messy divorce or they had overwhelming medical expenses, she said. And for those types of situations, its very easy to justify leveraging a credit card in order to help rebuild your credit.
Even if you file a successful bankruptcy case, some debts will not be we wiped out, including student loan debt, child support, alimony and most tax debts.
That was the case for Penny Hoarder Community member Karen Bush, from Toledo, Ohio. When she declared bankruptcy in 1998, the source of her debts were mostly expenses associated with her cancer treatment, she said.
I went through chemotherapy 10 years before that, and over the years little odds and ends and medical bills just kept piling up, she said. The credit cards were department store credit cards when I filed the bankruptcy, I think one of them only had $100 on it, so it was almost all medical.
Can Bankruptcy Stop Credit Card Collections
Bankruptcy CAN stop collection attempts from credit card companies that include lawsuits or other forms of legal action. Theautomatic stay offers protection from collection attempts and stays in place until your case is completed. The stay goes into effect when you file bankruptcy, either Chapter 7 or Chapter 13 .
Can You Declare Bankruptcy On Credit Cards Only
While credit card debt is a major reason people wind up filing for bankruptcy, you cannot file for bankruptcy on credit card debt alone, as the law requires that all your debts be listed in the bankruptcy documents. However, because bankruptcy can eliminate credit card and other unsecured debts, filing will often put you in a better financial position that allows you to keep your home.
Keeping a house is a major concern for most people filing for bankruptcy in Ohio, and there are several ways that bankruptcy can allow you to keep your house while discharging unsecured debt such as from credit cards. You will be able to keep your home if you can meet the requirements of the bankruptcy chapter that you choose, whether Chapter 7 or Chapter 13.
Bankruptcy laws are complicated, and our Ohio bankruptcy lawyer can help you choose the correct chapter and increase the chances of your being able to keep your home, car, and other assets. The skilled and compassionate Ohio debt relief attorneys at Fesenmyer Cousino Weinzimmer understand that even the most well-intentioned people can find themselves in financial difficulty.
You Can’t Get Rid Of Credit Card Debt Incurred Due To Fraud
Sometimes the creditor can challenge the discharge of your credit card debt. If successful, the court will not discharge the debt, and you’ll remain responsible for paying for it after your case ends. Here are a few common situations:
- You made a false statement on your credit card application to deceive the creditor that was “material” to the credit card issuer’s decision to extend credit to you. For example, you grossly inflated your income.
- You charged more than $725 to any single creditor for luxury goods or services within 90 days of your bankruptcy filing. In this situation, the law presumes that your intent was fraudulent.
- You got a cash advance from a single creditor totaling more than $1,000 within 70 days of your bankruptcy filing.