How To Clear Your Credit Card Debt By Filing Bankruptcy
These are unprecedented times. The pandemic and attendant government shutdowns and slowdowns have hit the economy hard, and many of us are unemployed or underemployed. Those without emergency savings have undoubtedly relied on their credit cards to make ends meet, but that lifestyle is unsustainable in the long run.
What is the next step? You may have heard that burdensome credit card debt is a common reason that people file for bankruptcy, and this is true. In fact, credit card debt is among the top three reasons people file bankruptcy, along with sudden job loss and medical bills.
For the honest but unfortunate debtor who unwittingly finds themselves in credit card debt they cannot hope to repay, bankruptcy can be the answer. Read on to find out how Chapter 7 bankruptcy might help you, from the office of a prominent Chapter 7 bankruptcy attorney.
Can You File Bankruptcy On Credit Cards
The simple answer is, Yes, you can file bankruptcy on credit cards. However, filing bankruptcy on credit cards is a bit more complicated. You need to determine if you qualify to file bankruptcy and under what chapter of bankruptcy you are eligible to file. You must also determine if filing bankruptcy is right for you. Some people who owe credit card debt might benefit more from a non-bankruptcy alternative for getting rid of credit card debt. Lets explore each of the options for getting rid of credit card debt in more detail.
If You Can’t Afford Your Credit Card Payments Bankruptcy Might Be A Good Option
Updated By Cara O’Neill, Attorney
Filing for bankruptcy is not a decision to take lightly. But once you’ve decided to move forward, paying certain debtssuch as credit cardsbecomes a waste of money. Whether it’s time to stop making payments will depend on:
- whether you can afford to pay back the debt
- if you’ve verified that you qualify for bankruptcy
- whether you’re sure you want to file for bankruptcy, and
- if a bankruptcy lawyer has given you the go-ahead.
Unless you’ve done all of the above, not paying your credit card bills could put you in a worse financial position. Find out about these and other considerations.
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Can Credit Card Companies Sue Me After I File For Bankruptcy
When you file for bankruptcy, the automatic stay protection goes into effect and prevents credit card companies from initiating or continuing a suit against you to collect money.
If the credit card company filed a debt collection lawsuit against you before you filed, and the case hasnt been settled the lawsuit cant proceed while the automatic stay is in effect, unless the bankruptcy court gives the card company permission.
If you do receive a discharge in Chapter 7, most often that will include discharge of judgments from debt collection lawsuits.
Researching Debt Settlement Companies
Before you enroll in a debt settlement program, do your homework. Youre making a big decision that involves spending a lot of your money money that could go toward paying down your debt. Check out the company with your state Attorney General and local consumer protection agency. They can tell you if any consumer complaints are on file about the firm youre considering doing business with. Ask your state Attorney General if the company is required to be licensed to work in your state and, if so, whether it is.
Enter the name of the company name with the word “complaints” into a search engine. Read what others have said about the companies youre considering, including news about any lawsuits with state or federal regulators for engaging in deceptive or unfair practices.
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Could Anything Prevent Me From Being Discharged
It is possible that your discharge could be opposed by a creditor, an LIT or the Superintendent of Bankruptcy. Generally, a bankruptcy discharge is opposed when the debtor has not fulfilled the requirements of the bankruptcy process. This might be due to:
- Not making the required monthly payments
- Failing to attend two mandatory credit counselling sessions
- Committing an offence related to the bankruptcy claim
There are a few other reasons why a bankruptcy claim could be opposed. For instance, if the bankruptcy was caused by gambling or if a creditor suspects fraudulent activity, it could be opposed by the creditor.
If the bankruptcy discharge was opposed, the debtor would have to attend a court hearing to determine the conditions they would need to fulfil in order to be discharged from bankruptcy.
Signs That Your Credit Cards Are Pointing You Towards Bankruptcy:
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How Bankruptcy Affects Credit Score
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In a Nutshell
There are a lot of misconceptions about the ways bankruptcy affects credit score. In this article, we’ll dispel some of these myths and provide information on how to improve your credit score after bankruptcy.
One of the first things that will go through any individual’s mind when considering bankruptcy is how filing for bankruptcy affects credit score. It’s an important financial decision, and being informed about how it will affect your financial standing is essential.
However, there are a lot of misconceptions about the ways bankruptcy affects credit score. In this article, we’ll dispel some of these myths and provide information on how to improve your credit score after bankruptcy.
Developing A Credit Improvement Strategy After Bankruptcy
Check your credit report. The first step towards improving your credit score after bankruptcy is to get a credit report. Review it with a careful eye and ensure that all of your debts have been properly discharged.
You’re entitled, by law, to one free copy of your credit report from a major credit bureau every twelve months, so it shouldn’t cost you anything to start examining your score. Once you have looked over your credit report and have a thorough understanding of where you stand, it’s time to start rebuilding your score through new, low-risk lines of credit.
If you owed student loans before filing for bankruptcy, you’ll notice that they are not among your discharged debts. They usually aren’t eligible for discharge unless the judge believes you won’t be able to repay them. While this may feel like a negative, it just means you have one extra way to start rebuilding your credit. Repaying your student loans on time will improve your credit score and remove old debt from your report.
Set a budget. Like anything in life, having a solid plan will set you up for success better than just about anything. When it comes to finances, the ultimate way to prepare for positive results is a budget.
If you’ve never set up a budget before, there are plenty of great resources online to walk you through the process. Not only do they relieve a lot of stress, but they also help you keep track of where your money is going, and help you cut costs in certain areas.
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What Debts Can Be Included
Bankruptcy includes most debts that are unsecured or without collateral. Examples of unsecured debts are:
- Potential loss of non-exempt assets
- Note on credit report for up to 7 years
- Monthly payments based on income
- Monthly budgeting statements
- Some debts are excluded
There are consequences to filing for bankruptcy, but many are misunderstood and can actually hinder someone from exploring their debt relief options. Lets take a look at some of these consequences in more detail.
Guarantors And Cosigners On Credit Card Debt
The discharge applies only to the debtor in a bankruptcy case. It does not extend to guarantors or cosigners. If anyone else is liable for charges that you made on a credit card, they will still be liable after you file Chapter 7 bankruptcy, regardless of whether the claim is dischargeable against you.
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The Work Doesnt Stop When You Get A Credit Card
With your new card, you should focus on improving your credit score so you can eventually qualify for better credit cards and get more favorable rates on other types of loans, like car loans, mortgages or student loan payments.
Make sure to pay your bills on time, every month, as thats the single biggest factor affecting your score, accounting for approximately 35% of your FICO credit score. The amount of total credit you use as a percentage of your credit limit also weighs in at 30% of your score, making it a worthy goal to try to keep your low.
You may also want to consider using a program like Experian Boost, a free program which counts your payment behavior from your linked checking account that you use to pay your utility, cell phone and video streaming media plans. Or use it in conjunction with American Express free Score Goals program, which maps out a blueprint of credit-building actions to help you achieve a better credit profile over time.
Personal Bankruptcy: A Real
Everyones financial situation is different, but it helps to hear about other peoples stories.
This real-life debt story about a couple who were dealing with a health crisis illustrates the relief that a debt relief program, like bankruptcy or a consumer proposal, can provide to people who are going through tough times.
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What Bankruptcy Can Do
Bankruptcy allows people struggling with debt to wipe out certain obligations and get a fresh start. The two primary bankruptcy types filedChapter 7 and Chapter 13 bankruptcyeach offer different benefits and, in some cases, treat debt and property differently, too. You’ll choose the chapter that’s right for you depending on your income, property, and goals.
Here are some of the things you can expect regardless of whether you file for Chapter 7 or 13.
Can The Credit Card Companies Sue Me After I File For Bankruptcy
No. Once you file for bankruptcy protection, bankruptcy’s automatic stay prohibits most creditors from continuing collection efforts against you. The stay extends to credit card companies and prohibits them from suing you, sending you collection letters, calling you, or engaging in other collection activities. Learn more about bankruptcy’s automatic stay.
Chapter 7 Gets Rid Of Credit Card Debt And Judgment Debts
When you file a Chapter 7 bankruptcy petition, you include all your debts. A Chapter 7 case discharges most, if not all, unsecured debts, including credit card debts and personal judgments from debt collection lawsuits.
You receive a bankruptcy discharge when you complete your Chapter 7 case. The bankruptcy discharge relieves your responsibility to repay a debt. In other words, if a debt is discharged in bankruptcy, you are not responsible for the payment of that debt. The creditor is not allowed to take any actions to collect a discharged debt.
Examples of debts that are eligible for a discharge in Chapter 7 include:
Old rent or lease payments
Medical bills and debts
Some old income taxes
Alimony, child support, and student loans are non-dischargeable debts. In a few cases, a debtor may be eligible for a hardship discharge for student loan debt. However, alimony, child support, and a few other debts are never dischargeable in bankruptcy.
What Are The Requirements For Bankruptcy
The requirements for bankruptcy depend on the type you’re hoping to file. To file Chapter 7 bankruptcy, for instance, your income in the previous six months must be lower than the median income for households of the same size in your state. If it isn’t, you can undergo a means test that assesses your financial status and ability to pay your debts.
Other factors the court considers include how long it’s been since you last filed bankruptcy, whether you’ve completed a credit counseling course and the reason behind the filing.
Under Chapter 13 bankruptcy, you must have enough income to make the monthly debt payments outlined in the reorganized debt plan. You must have also filed a tax return in all of the previous four years. The court will also consider the amount of your debtyou can’t, for example, have more than $419,275 in unsecured debtas well as whether you’ve completed a credit counseling course and more.
If you’re not sure whether you qualify for bankruptcy, search for an attorney in your area who is willing to do a free consultation to assess your situation and provide you with expert advice.
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Luxury Goods And Cash Advances
There is a specific section of the United States Bankruptcy Code that deals with purchases for luxury goods and cash advances in the 90 days before filing for bankruptcy.
Section 523 says that consumer debts for luxury goods owed to a single creditor and totaling over $550 incurred within 90 days of filing for bankruptcy are nondischargeable .
Additionally, cash advances which all together total more than $825 taken within 70 days of the bankruptcy filing are nondischargeable under the same section of the Code.
Its pretty cut and dried: If you made the charges for luxury items or took the cash advances, you are stuck with them. Bankruptcy cannot help unless you can wait to file for bankruptcy to remove your case from the 90- or 70-day look-back period. But even then, there is another section of the Bankruptcy Code that can give you problems.
Failing To Fully Disclose Financial Information Or Attempting To Hide Assets
These are federal crimes. Not only can the Trustee object to discharge and move to dismiss your case for fraud, but you can be charged with a felony. The FBI will investigate, and the Department of Justice will prosecute.
If you are convicted, you can serve up to five years in prison and pay a fine of up to $250,000.
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What Happens When Im Discharged From Bankruptcy
Once youve been fully discharged from bankruptcy, you will receive a legal document called a Certificate of Discharge or an Order of Absolute Discharge. This document states that your debt has been permanently erased, and you are no longer responsible for the debts listed on your bankruptcy application. It is possible that you could receive a conditional discharge, which requires certain conditions to be met, or a suspended discharge, which does not take effect until a later date.
How Accounts Appear On Your Credit Reports
Before filing for bankruptcy, you probably had bills you struggled to keep up with credit cards, medical debt and more.
When you include those accounts in a bankruptcy filing, theyll still be reported on your credit reports. Accounts discharged in bankruptcy can be reported as discharged or included in bankruptcy with a zero balance. Even though you owe $0 for them, theyll still appear on your reports. If you apply for credit, lenders may see this note when they check your reports, and they may deny your application.
But heres that good news we promised: Accounts included in a bankruptcy filing wont be reported as unpaid or past due anymore, and you may feel relief without those financial burdens.
Your credit scores will eventually start rebounding with those positive effects, Huynh says. Thats assuming, of course, you use credit responsibly from here on out.
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Filing Bankruptcy On Credit Cards Only
Filing bankruptcy just to eliminate credit card debt is not practical for one reason: You must include all debts when you file bankruptcy. Thats true whether youre filing Chapter 7 or Chapter 13.
So, if you had no other debts, there are better options for paying off , like debt management or debt settlement programs, that wouldnt be as drastic or have as much negative impact as bankruptcy.