Will Chapter 7 Get Rid Of My Cosigner’s Responsibility To Pay My Credit Card Debt
No. The bankruptcy filer’s debt is the only debt erased. For instance, suppose you and your mother open a credit card account together and are both responsible for the bill. You’re cosigners. A Chapter 7 discharge will erase your responsibility to pay the credit card balance, but your mother will remain obligated to pay the bill.
Chapter 13 works a bit differently. Creditors can’t collect from cosigners during the Chapter 13 bankruptcy, and you can fully protect your cosigner by paying the total debt in your Chapter 13 plan.
Are There Credit Card Debts That You Cant Erase During Chapter 7 Bankruptcy
In a few cases, a debtor may not be able to discharge credit card debt. A creditor may file an objection to the debtorâs discharge in some circumstances. The objection is an adversary proceeding, which is a lawsuit within the bankruptcy case.
Your credit card debt may not be dischargeable if you used the credit card to purchase luxury goods or to pay for non-dischargeable debts.
If you use your credit cards to charge $675 or more for luxury goods or services within 90 days of filing your Chapter 7 petition, the court may find that the credit card debt is non-dischargeable.
Luxury goods and services can include more than just really expensive items or property that you own. Luxury can mean anything that you donât necessarily need to stay on your feet or support your dependents. So, if you have charged $675 or more in credit card debt recently, you may want to wait at least 90 days from the last credit card charge to file a Chapter 7 bankruptcy case.
If you used the credit card to pay for debts that you could not typically get rid of in a bankruptcy case, that debt wonât likely get erased. For instance, if you use your credit card to pay child support, alimony, back taxes, or student loans, the credit card company may object to your discharge.
Foreclosures or repossessions
Debt collection lawsuits and personal judgments
Debt Settlement Credit Score Impact
Debt settlement will be on your credit report for seven years and definitely impact your ability to get a loan and the interest rate you pay, if you are approved.
Debt settlement typically requires that you make a lump-sum payment to clear your account. Its generally advised that you stop making monthly minimum payments until youve negotiated a settlement plan, as creditors will be more inclined to negotiate with you if theyre no longer receiving any payments on your debt. But stopping payment can further damage your and expose you to late fees, additional interest charges, collection efforts and lawsuits.
The possible advantage to settlement is that in exchange for a payment, creditors will sometimes agree to report the settlement as paid as agreed, which means your score wont get hit with negative points like it would if it were reported as just settled. Not all creditors report information to the three credit reporting bureaus so its possible, though not probable, that your settlement may not get reported.
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Can You Declare Bankruptcy To Escape A Credit Card Lawsuit In Texas
Post by Christopher Migliaccio
Facing a lawsuit for unpaid credit card debts is stressful enough to wipe away your peace of mind and disrupt your life. The resulting garnishing of bank accounts and seizing non-exempt assets can bring your financial life to a standstill or set it in a dooming downward spiral.
However, the Federal bankruptcy code provides a way out if you find yourself in such a situation. In the event your credit card issuer sues you for unpaid debts, as a Texas resident, you can declare bankruptcy to escape the lawsuit.
There are two types of bankruptcy under which you may be discharged against your credit card obligations, namely, chapter 7 and chapter 13 bankruptcy. Your eligibility under either of the two depends on your financial situation, that is, debts versus assets and incomes. A bankruptcy attorney can help you establish which type of bankruptcy suits your financial situation.
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.
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Figure Out How You Got Into Credit Card Debt
One of the most important steps to get a handle on credit card debt is to understand what got you into debt in the first place. Otherwise, you may end up in the same boat soon after paying off your current card balances.
Brittney Castro, CFP for the Mint financial app, believes bad habits often stem from a lack of financial literacy. College students are often offered a credit card on campus or apply for multiple credit cards online, thinking they are more or less free money, she says. What they arent told is if the balance is not paid off in full every month, they will be charged the credit cards APR on their balance , which can sometimes be as high as 29.99%. This can quickly spiral into a debt balloon.
To avoid this situation, its important to know how credit cards work. Credit comes in handy in many situations, but the convenience could cost you. The longer you carry a balance, the more you will pay in interest charges. Proper and smart credit card habits include making payments on time and paying off the full balance every month, she says. In other words, only charge it if you can afford it.
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How Do You File Chapter 7 Bankruptcy
You can probably complete the process within six months. You’ll have to follow several steps.
You must complete pre-file bankruptcy counseling from a qualified nonprofit credit counseling agency within 180 days before filing.
Find an attorney:Before diving into the various forms required to file Chapter 7, find a qualified bankruptcy attorney to help. Its hard to find money for a lawyer when you need debt relief, but this is not a DIY situation. Missing or improperly completed paperwork can lead to your case being thrown out or not having some debts dismissed.
File paperwork: Your attorney will help with filing your petition and other paperwork. But its on you to gather all relevant documentation of your assets, income and debts. An automatic stay goes into effect at this point, meaning that most creditors cannot sue you, garnish your wages or contact you for payment.
Trustee takes over: Once your petition is filed, a court-appointed bankruptcy trustee will begin managing the process.
Meeting of creditors: The trustee will arrange a meeting between you, your lawyer and your creditors. Youll have to answer questions from the trustee and creditors about your bankruptcy forms and finances.
Your eligibility is determined: After reviewing your paperwork, the trustee will confirm whether youre eligible for Chapter 7.
Education course: Before your case is discharged, youll have to take a financial education course from a qualified nonprofit credit counseling agency.
Debt Collectors Are Aggressive
There are legal limits as to what they can do, but they tend to come as close to the line as possible between legal and illegal debt collection practices. You can expect to get calls at home and work. Your friends and family might receive telephone calls if you do not respond to their initial efforts to contact you. Eventually, theyll take legal action and file a lawsuit asking the court for a judgment against you that allows them to be even more aggressive.
Its usually at this point that people decide to check into bankruptcy. If the lawsuit is successful, it could result in wage garnishment or bank levies, making it difficult for you to catch up on your debt.
If youre hoping to avoid bankruptcy, its important to act before a creditor or debt collector files a lawsuit. Options you have for dealing with credit card debt before creditors receive a judgment include:
- Creating a new payment arrangement or negotiating a different due date for payment
- Consolidating debts
- Using a personal loan or other means to pay off credit card debt
- Asking family members or friends for payment assistance
- Using money from personal or retirement savings to pay the debts
- Defaulting on the debt without concern for the consequences because you have no assets or income
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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?
Strategies When Accounts Are 6 Months + Overdue
Once your account has been unpaid for six months or more, your creditor has several options and will do one of the following:
- Continue collection efforts using its in-house collection department
- Hire a collection agency to collect your account on a commission basis
- Sue you
- Sell your outstanding account
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Can Bankruptcy Clear Credit Card Debt
When you find yourself in a mountain of debt, declaring bankruptcy may be your best, if not your only, course of action. We feel like it is extremely important to know how declaring bankruptcy will affect your debt and your future. Talking to an experienced bankruptcy attorney is something you need to do before you make the decision to declare bankruptcy. There are certain kinds of debt that can be discharged and other kinds that cannot.
The bankruptcy code does not list what is dischargeable and what is not, but it does list what debt is non-dischargeable. In general terms, the following are some of the debts that are most often dischargeable when a bankruptcy is filed:
- utility bills
- payday loans
- unsecured loans like credit cards
The kind of credit card debt that will not be discharged when filing a Chapter 7 bankruptcy is when you charge a vacation to your credit card and a month later file for bankruptcy, charge large-ticket items that you couldnt possibly afford to pay back, go on shopping sprees that arent consistent with your spending prior to the spree, or any spending you do that may appear fraudulent.
The Difference Between Secured And Unsecured Credit Cards
There are two types of traditional credit cards: secured and unsecured. Both offer easy access to credit, a convenient way of paying for many goods and services, and possibly rewards programs. Secured and unsecured credit cards, however, are very different when it comes to the credit card companys rights when a consumer fails to make their payments.
In the case of a secured credit card, the money advanced to the consumer via the credit card is secured against real property the consumer owns. Thus, the credit card company has collateral it can go after in the event the cardholder does not make his or her payments.
The most common collateral used on a secured credit card is the cardholders home. Some Canadians have signed a Master Credit Agreement with a Canadian financial institution, under which the consumer receives access to a certain amount of credit in exchange for collateral, typically a mortgage on the consumers residence.
If a credit card company issues a credit card to a consumer and does not take some kind of security interest or collateral, then the card is an unsecured credit card.
Many credit cards in Canada are unsecured. These tend to have higher interest rates than secured credit cards. In the event that a consumer with an unsecured credit card stops making payments, the credit card company has no collateral to look to in order to recover its monies. Therefore, the company will use other methods.
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Do You Have Late Payments On Your Credit Card
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The purpose of this section is to describe how unsecured creditors, more specifically large creditors, attempt to recover monies owed to them. The comments contained in this section might not apply to small creditors like your dentist, veterinarian, or lawn care company, nor to governments, which often have extraordinary powers when it comes to collecting monies owed to them.
For the first three to six months that your account has not been paid, staff at your creditors in-house collection department will attempt to call you requesting payment of your . During this period, they will likely mail you written notices demanding payment. If you do not pay your account, they will proceed to more aggressive methods.
Chapter 7 For Credit Card Debt: How It Works
While still in debt, credit card issuers may:
- Raise your interest rates
- Give your account to a debt collection agency
- Deny new credit card applications
- File a debt collection lawsuit to try to claim repossessions
Collection agencies can call you at home or work and demand payment of your total debt. This harassment is legal unless you file a Chapter 7 or use another method to stop creditor harassment.
Speak to a bankruptcy attorney to decide if Chapter 7 bankruptcy is right for your financial situation. Once you file for bankruptcy, you will get an “automatic stay” that:
- Stops creditors from calling
- Erases unsecured credit card debt
- Stops wage garnishment for debts
- Appears on your credit history and lowers your credit score
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What Is A Debt Collection Lawsuit
When you fail to pay your credit card debt, the company may file a debt collection lawsuit seeking payment. If your , you have a short time to file a response to the lawsuit. If you ignore the credit card lawsuit, the company will file a motion asking the judge for a default judgment. The default judgment states that you owe the credit card debt. In most cases, the judge allows the credit card company to add attorney fees and other costs to the debt you owe.
The default judgment is recorded at your local county courthouse. The judgment accrues interest until it is paid in full. In most states, the judgment also attaches to any real estate that you own or purchase after the judgment is entered via a lien. If you sell your property, you must pay the judgment in full from the proceeds of the sale.
Actions a Creditor May Take After Getting 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 also allow judgment holders to apply for supplemental proceedings to identify any personal property the judgment holder may seize to satisfy the debt.
Reasons Debt Discharge Is Denied
You can face a lawsuit within the bankruptcy case, called an “adversary proceeding.” This is when a creditor says some of your debts should not be dismissed. This can happen for many reasons, but two common reasons for adversary proceedings include when a debtor has purchased luxury goods or you have used your credit card for expenses that cannot be dismissed through bankruptcy.
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When To Consider Debt Settlement Or Bankruptcy
If your monthly debt payments, excluding mortgage or rent, exceed 20% of your income, you have a debt problem that requires action. The seriousness of the problem, and your ability and determination to overcome it, will determine whether a debt settlement plan or bankruptcy is the better option.
Here are some scenarios in which debt settlement may provide the better path out of debt:
- Youre able and willing to negotiate with creditors or debt collectors on a settlement plan that you can afford and stick to.
- Your creditors will agree to greatly reduce your debt burden in exchange for your commitment to make a lump-sum payment.
- Your income is stable enough that you can continue to pay your mortgage or rent and other essential bills in addition to the payments required under a debt settlement, while still saving some money for emergency expenses.
Here are some scenarios in which bankruptcy is the better option:
Its important to remember that these are general guidelines, and anyone in serious debt who is weighing the pros and cons of debt settlement or bankruptcy is recommended to consult with a nonprofit credit counselor. Counselors from National Foundation for Credit Counseling member agencies such as InCharge Debt Solutions can help you evaluate your current financial situation and the various debt relief options that may be available to you.