What Happens If Credit Card Debt Goes Into Default
The consequences of defaulted credit card debt can be severe. For starters, defaulted credit card debt often results in the creditor filing a lawsuit. Eventually, the lawsuit will result in a judgment. With a judgment, your creditor can garnish your wages.
Further, when one defaults on credit cards, the negative monthly reporting can severely damage your credit rating. Ultimately, a damaged or poor credit rating can affect almost every aspect of your life.
For example:
- You may not be eligible for a loan to purchase a home, car, or other large purchase. Applications are frequently rejected by banks or financial institutions in some cases, you may have to obtain a loan with a high interest rate, which only adds to your financial burden.
- Poor credit may result in your having to pay higher insurance premiums or larger deposits to have utilities turned on.
- A low credit score may result in an applicant being turned down for financing of a mobile phone.
- It can be difficult to obtain a place to live when your credit rating is damaged, whether in a rental home or apartment or trying to secure a mortgage on a home.
- While not as common, some employers conduct credit checks when considering an individual for employment some will not hire someone with a poor credit rating.
Will I Be Able To Get A Credit Card After Filing For Bankruptcy
The reason I usually dont suggest trying to keep a credit card while filing bankruptcy is because youll get plenty of offers in the mail once you file. Although your current credit card company may decide that youre a higher risk because of the filing and cancel your card, there will be plenty of other companies that see you as a much safer bet since you dont have all that other debt to worry about after bankruptcy. You have to be careful, however, as many of these offers come with very high interest rates. While I like to reassure clients that bankruptcy wont prevent them from obtaining credit in the future, there are a series of steps that should be taken to rebuild your credit as quickly as possible.
As usual, these blog posts shouldnt be taken as legal advice nor does it form an attorney-client relationship. Laws are always changing and every state and situation is unique. Contact us or your local bankruptcy attorney for specific advice for your situation. Michigan consultations are always free if you call us at 237-7979.
What Happens To Company Credit Cards
If your employer issued you a credit card to pay for travel and other expenses, you might be concerned about including it in your bankruptcy. Youll only have to list the card if youre liable to the lender for the balance.
Company credit cards come in three varieties based on whos liable on the account:
- The monthly statement goes directly to the employer, and the employer is responsible for paying the bill.
- The monthly statement goes to the employee, who is liable for payment of the account, then seeks reimbursement from the employer.
- A combination of the two. The statement usually goes directly to the employer, but employees reimburse the company for any personal expenses.
When you file for bankruptcy, you must list the card if you have any personal liability on it. If your company shoulders that entire burden, and you have no responsibility for the account, you shouldn’t list the card.
If youre not sure whether youre responsible for payment, your human resources department should be able to clear that up.
But this may clue you in: if your employer did nothing more than hand you a card and tell you what you could purchase with it, its probably a company-issued card that carries no individual liability.
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Debt Consolidation And Debt Settlement To Pay Off Credit Cards
For some people, debt consolidation or debt settlement may be a good way to get rid of credit card debt. However, there are pros and cons of these debt relief options.
One of the most significant disadvantages of debt consolidation is that many people use their home equity to consolidate credit card debts. In a bankruptcy case, the equity in your home is usually protected from being used to repay your unsecured debts. By using your home equity to repay credit cards, you are turning unsecured debts into a secured debt. If you fail to pay the home equity loan payment, you could lose your home.
There are a couple of problems with debt settlement. First, you need enough money to pay lump sum payments to your creditors to settle the debt. Many people use their retirement savings or the proceeds from a debt consolidation loan to negotiate settlements with credit card companies. Like the equity in your home, your retirement savings are protected in bankruptcy. Therefore, you are using funds that you will need to support yourself during your retirement unnecessarily.
Also, the amount that the credit card companies write off when you settle the debt is considered income by the Internal Revenue Service. You must report these amounts on your tax returns, which could result in tax debt for that year. Before you consider debt consolidation or debt settlement, read our Ultimate Guide to Credit Card Consolidation and Debt Settlement Guide.
Wipe Out Secured Debt
If you can’t afford a payment that you secured with collateralsuch as a mortgage or car loanyou can wipe out the debt in bankruptcy. But you won’t be able to keep the house, car, computer, or other item securing payment of the loan. When you voluntarily agree to secure debt with property, you must pay what you owe or give the property back .
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Can You Keep A Credit Card Out Of Your Bankruptcy
All debts including credit card debts, must be disclosed in your bankruptcy petition. This means that you cannot keep any credit card that has a balance out of your bankruptcy, it must be disclosed and will be discharged along with the rest of your unsecured debts. Credit cards with zero balances do not create a debt obligation and are therefore not required to be disclosed in a bankruptcy filing. For more information see: Can I Keep a Credit Card Out of Bankruptcy?
Reaffirming Credit Card Debt In Bankruptcy
If you have credit cards when you file bankruptcy, then any card on which you owe money will be listed among your debts. Most credit card companies will allow you to keep the card if you reaffirm the balance and enter into a new agreement.
Reaffirming credit card debt in bankruptcy should be used only as a last resort, however, because once you do that, your debt won’t be discharged. Think hard about whether you really need that card, and read about your other options below.
Still, if you have a card with a very low balance, you might consider reaffirming. Ultimately, creditors will make the decision of whether this is an option in your specific case. But because companies don’t want to incur loss because of discharged debt, most will allow you to reaffirm the debt.
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Youll Only Be Eligible For Certain Cards
Filing for bankruptcy, regardless of which type and the circumstances, will have a lasting impact on your credit score. And, a bankruptcy will show on your credit report for a significant amount of time. A Chapter 7 bankruptcy will stay on your credit report for 10 years and a Chapter 13 will stay on your report for up to seven years.
With a less-than-stellar credit score, responsible use of a credit card can help rebuild your score. But it may seem like a Catch-22 since you wont qualify for many cards like those offering rich rewards or premium perks.
The best move is to apply for a card designed for someone looking to build their credit. A secured card is an ideal card for this purpose and even with a fresh bankruptcy you may be able to get approved. With a secured card, the credit limit you receive is typically equal to the amount of the security deposit you put down.
There are also a handful of unsecured cards that wont check your credit score or are willing to extend a line of credit even to someone with a blemished credit history. These cards typically come laden with fees and sky-high rates. Secured cards tend to have lower costs.
Avoid Unsecured Credit Cards After Bankruptcy
There are a handful of unsecured credit cards aimed at consumers with bad credit, such as the . The majority of these cards come with very low credit limits, high APRs of between 25% and 29.99%, and annual fees that can easily exceed $100 a year. Some also have a one-time processing fee to open the account and monthly servicing fees on top of the annual fee. In short, you pay a lot for the privilege of avoiding a security deposit.
Similarly, store credit cards also have lower qualification standards, so a bankruptcy may not disqualify you. But these, too, come with low limits and high APRs, and usually have limitations on where they can be used.
Because of their fees, unsecured credit cards for bad credit typically are more expensive than secured cards. There are plenty of secured cards that dont charge annual fees, and you can get your security deposit returned as long as you pay your balances off in full every month. But with these unsecured cards, the fees you pay wont be returned.
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Can You Keep Some Credit Cards If You Declare Bankruptcy
Unpaid medical bills and being out of work for an extended period are the leading reasons why someone may file for bankruptcy. Most people use bankruptcy as a last resort when the burden of debt becomes overwhelming. Bankruptcy essentially freezes your credit file, meaning you can’t apply for any new credit while your case is pending.
If you used your to stay afloat, its almost impossible to get a handle on that debt without some help. Learn whether you can keep some credit cards if you declare bankruptcy.
The Basics Of Credit Card Debt And Bankruptcy
In an economy where housing problems dominate the headlines, high interest credit cards still remain one of the largest issues consumers face in their fight for financial health. It should come as no surprise to learn then, that credit card debt is still one of the primary reasons consumers are forced to file for bankruptcy. When a credit card account has been delinquent for more than 180 days, banks will charge off what is owed as bad debt and sell the account to a debt collector who will call, harass and even sue if the past due balances are high enough. Mounting pressure from debt collectors pushes many consumers through the front door of a bankruptcy office because chapter 7 protection is widely perceived as the fastest and best way to get out from under unmanageable credit card debt. While it is true that filing for bankruptcy can help discharge credit card bills, there are some basics that every consumer needs to know before relying on bankruptcy as a debt relief measure.
In this post we will give you the basics so that you can evaluate whether bankruptcy is a good solution to your credit card problems. Please also be sure to browse the related posts section of this page for additional information.
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Can I Be Sued After Bankruptcy
No. One of the benefits of filing for bankruptcy is that it prevents creditors from taking you to court. It also prevents creditors from engaging in further collection attempts. After filing bankruptcy, the automatic stay prevents credit card companies from calling you, sending letters and engaging in similar activities.
What Are Wage Garnishments
A wage garnishment allows a creditor to take some money off of your paycheque before you receive it. A creditor would need to file a lawsuit, receive a court decision that you owe them money, and then apply for a wage garnishment.
If your wages are being garnished by a creditor, you can stop wage garnishments by repaying the debt you owe, appealing to the court to release the garnishment, or appointing a Licensed Insolvency Trustee to file a consumer proposal with your creditors, or file for bankruptcy. Both a consumer proposal and bankruptcy put a stop to wage garnishments from the date they are filed. No other debt relief strategies are able to stop a wage garnishment.
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How Soon Will My Credit Score Improve After Bankruptcy
By FindLaw Staff | Reviewed by Bridget Molitor, JD | Last updated June 30, 2021
You can typically work to improve your credit score over 12-18 months after bankruptcy. Most people will see some improvement after one year if they take the right steps. You can’t remove bankruptcy from your credit report unless it is there in error.
Over this 12-18 month timeframe, your FICO credit report can go from bad credit back to the fair range if you work to rebuild your credit. Achieving a good , very good , or excellent credit score will take much longer.
Many people are afraid of what bankruptcy will do to their credit score. Bankruptcy does hurt credit scores for a time, but so does accumulating debt. In fact, for many, bankruptcy is the only way they can become debt free and allow their credit score to improve. If you are ready to file for bankruptcy, contact a lawyer near you.
How To Build Credit After Bankruptcy
You can start rebuilding your credit score after the bankruptcy stay stops creditors from taking action. Bankruptcy will show on your record for 7-10 years, but every year you work to improve your credit, the less it will affect you and the financing you seek.
You need to wait 30 days after you receive the final discharge. This means most of your accounts will be at a zero balance, and creditors must stop calling you about debts.
To rebuild your credit score, you should:
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Should You Get A Credit Card After Bankruptcy
Getting a credit card after bankruptcy can be a smart move, provided you can manage it responsibly. The bankruptcy will have damaged your credit score, and making on-time credit card payments is one of the best ways to rebuild your creditworthiness. Before filling out a credit card application after your bankruptcy, though, consider the reasons you got into financial trouble in the first place and if getting more credit is a move you can handle at the moment.
Perhaps your bankruptcy was the result of an unforeseen and unlucky event, such as a medical emergency, divorce, job loss or natural disaster, rather than bad money management. In that case, youre more likely to be ready for the financial responsibility of having a credit card again and for beginning the long road to rebuilding your credit. Just make sure to shore up other areas of your financial well-beingsuch as a stable job and an emergency fundso you can be prepared for any unexpected challenges you may face in the future.
Housing With A 500 Credit Score
Because a 500 credit score indicates a high risk that youâll default on payments, youâll likely be turned down for most mortgages. You may also have a difficult time getting approved for rental housing. That said, a low credit score doesnât mean that you canât rent an apartment or buy a house.
Renting a Home
If youâre seeking rental housing and you have a 500 score, there are ways to increase your odds of getting approved. Look for housing offered by independent owners and landlords rather than properties that are owned or managed by corporations. Larger investment or management companies tend to have stringent credit requirements and may use software to automatically deny your application.
Buying a Home
Like renting, buying a home is more difficult with a 500 credit score, but itâs not impossible. Some things that can help you secure a mortgage despite a low credit score include:
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Having a co-borrower with good credit
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Presenting evidence of an improved financial situation, such as pay stubs showing a steady income and
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Maintaining a healthy debt-to-income ratio .
Itâs also important to apply for the right type of mortgage. Some kinds of loans are better for people with bad credit than others. Loans backed by the Federal Housing Administration , for example, are often a good choice for borrowers with scores in the subprime or deep subprime range.
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