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How To File For Bankruptcy For Credit Card Debt

If You Need Bankruptcy Protection Make It Count

Filing bankruptcy on credit cards

There’s a limit on how often you can apply for bankruptcy, which is why Tadross recommends his clients think very carefully about it before going that route. The danger of jumping into a bankruptcy head-first right now is that you may end up incurring more debt over the next few months. If that happens, and you’ve already filed, then you won’t have a lot of options to wipe out your new debt.

If you file a Chapter 7 bankruptcy and receive a discharge of your debt, you can’t file again for eight years. If you file for Chapter 13, you’ll need to wait six years before you can file for a Chapter 7 bankruptcy. If you want to re-file for Chapter 13 bankruptcy again, the waiting period is two years. 

It’s important to consider the timing. Will you see any benefit now? For example, if you’re about to lose your home or your car is going to be repossessed, then filing for a Chapter 13 and stopping the immediate foreclosure may help. Several states and cities have halted foreclosures and those with federally-backed mortgages are protected for now, but many homeowners who aren’t covered by these measures.

If you just lost your job or were furloughed because of the coronavirus, but expect to be rehired once business resumes, then it may be best to wait, says John Rao, an attorney and bankruptcy expert with the National Consumer Law Center. 

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.

Getting Rid Of Credit Card Debt In Chapter 13 Bankruptcy

If you make more money than the median income, you should speak to a bankruptcy attorney to review your options.

You can file for Chapter 13, which creates a repayment plan and gives you more time to pay off your debts without creditors harassing you.

The plan could give you 36-60 months to pay off the debt. In most cases, you will need to pay off a fraction of credit card debt, and the rest can be discharged.

Other Important Notes About Collection Agencies

  • You may be able to take action to stop calls from collection agencies and in some instances, creditors, debt buyers and law firms
  • A creditor can only assign your outstanding account to one collection agency at a time
  • Some law firms in Canada operate in virtually the same manner as a collection agency
  • If your debt remains unpaid for more than six months, a collection agency representing your creditor might be prepared to negotiate a one-time payment for less than one hundred per cent of the outstanding balance; typically, the older your account the more approachable a creditor might be

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.

What A Means Test Means

When you sought bankruptcy protection, Vanessa, the law was different. That was before 2005 when Congress created something called a means test. Basically, someone else appointed by the bankruptcy court studies your financial situation and decides if you even qualify for Chapter 7 or 13.

Bottom line: Thanks to the Bankruptcy Abuse Prevention and Consumer Protection Act , it is indeed harder to declare bankruptcy today than it was before 2005.

In Too Deep To Recover From Credit Card Debt Theres Still Help

Perhaps youve been reading this and thinking, its too late for budgeting to help me. Are you already late on paying several accounts? Are you getting calls from creditors or collection agencies? Are there court judgements against you from creditors, or have your wages or bank account been garnished? These are all signs that you are insolvent and need a new financial start. 

How To Beat A Credit Card Lawsuit In Court

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In a Nutshell

Getting sued by a credit card company can be intimidating. Maybe youâve become so good at ignoring collection calls that youâre tempted to trash the complaint and summons. Donât. You have legal rights and defenses that youâll lose by not contesting the lawsuit. Plus, if you fight back in court, your chances of winning the case are much better than you might initially expect.

Getting sued by a credit card company can be intimidating. Maybe youâve become so good at ignoring collection calls that youâre tempted to trash the complaint and summons. Donât. You have legal rights and defenses that youâll lose by not contesting the lawsuit. Plus, if you fight back in court, your chances of winning the case are much better than you might initially expect.

Most credit card lawsuits are brought by debt-buyers who don’t expect you to fight back. They win about 95% of cases by default. Because facing a no-show is easy, they come to court unprepared and without the documents needed to prove their case.This article provides information about where creditors can go wrong and discusses affirmative defenses that may help you beat a credit card lawsuit.

The Special Case Of Student Loan Debt

I’m $80,000 in Credit Card Debt! File for Bankruptcy?

Student loans in Canada are handled differently from other forms of unsecured debt. In most cases, you must have been out of school for seven years to include this type of debt in a consumer proposal or a bankruptcy. A third possibility with student loans is to apply for a court-ordered discharge of the debt this option may be available under certain conditions, five years after you leave school. Read more on the Superintendent of Bankruptcy Canada website.

If considering any of these options, you can seek the advice of a Licensed Insolvency Trustee.

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.

Lets Take A Look At A Few Of Those Mistakes:

Failing to fully understand the credit card terms. Many post-bankruptcy debtors are so excited to receive credit card offers after their bankruptcy that they end up skimming over the terms of the credit card. This can result in signing up for credit cards which are stuffed with many fees and high interest rates.Placing irresponsible authorized users on their credit card account. Many post-bankruptcy debtors make the mistake of trying to help out friends and family by placing them on their credit card accounts as authorized users only to be left with a large bill after those people fail to pay.

Co-signing credit card accounts or other loans for friends and family with credit issues. Post-bankruptcy debtors must remember that if they are not paying their own bills their friends and family members are even less likely to pay a bill which was co-signed.

Failing to communicate with creditors early and often when they run into financial problems. Post-bankruptcy debtors are not immune to financial issues after their bankruptcy discharge. But when those issues do come up, they must make sure they communicate clearly and early with creditors.

Failing to get any creditor agreements in writing. As we mentioned in point #4, sometimes there are financial issues which require us to work something out with creditors. But post-bankruptcy debtors need to make sure that they get all agreements in writing.

Tips On Making Sure That Your Credit Card Use Has A Positive Impact:

Maxing out your credit card will have a negative impact on your credit score. When a potential lender sees that a debtor is using their credit cards to the max, they see a debtor who is already living on the edge and who is probably not ready for more credit. Also, maxed out credit cards bring down your credit rating by increasing your debt to income ratio.Paying off your credit card each month only to charge it up again will not improve your credit score. Lets take a look at how this works. If you have a credit card with a credit limit of $1000 and you charge $800 each month and then pay it off each month, you will still have a high debt to income ratio which is bad news for your credit score.Keep your usage of your credit cards low and you will reap the rewards of a low debt to income ratio which shows that you are not depending on your credit cards just to survive. The irony of the credit game is that lenders are more willing to extend credit to those who dont need it. If you want to win the credit game you must project the image of being one of the debtors who dont need the high credit limits and you will find that more lenders want to work with you.

Chapter 7 Gets Rid Of Credit Card Debt And Judgment Debts

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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:

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.

Filing For Bankruptcy Stop Using Your Credit Cards

If you are among the millions of Americans struggling with debt that seems insurmountable, bankruptcy may be the best option for finding relief and a fresh financial head start. If you are considering bankruptcy, you should now that there are certain things you might want to avoid prior to filing under any Chapter of the bankruptcy code. This is especially true when certain action, such as using credit cards, may actually negate your eligibility for filing, or even subject you to criminal consequences.

For many people struggling with debt, using a credit card has been a means to get by. Unfortunately, incurring charges can only cause the cycle ofdebt to continue. At Allmand Law Firm, PLLC, we have worked with numerous men, women, families, and businesses throughout the Dallas Fort Worth area when they were dealing with tough times. We know the struggles our clients face, and we know that credit cards can be the lifeline they rely on when times get increasingly tough.

While using a credit card to pay down debts and obligations may not always have negative consequences, you must consider how it is being used and why you should try to limit or avoid using one altogether.

Avoiding Credit Card Disputes

Under the bankruptcy laws enacted in 2005, bankruptcy petitioners need to be more cautious about their credit card use than ever before. Its not just because bankruptcy courts can dismiss bankruptcy petitions over what they deem to be overtly fraudulent use it is because card lenders can file a dispute to block your bankruptcy petition.

Understandably, credit card lenders want to ensure that they collect on your debts and then some and if they see that you are preparing to file a petition for bankruptcy, they will look for every excuse in the book to block your petition. The 2005 bankruptcy laws have made it easier for lenders to do so because credit card companies sponsored them.

Therefore, if you want to ensure you can file for bankruptcy without experiencing any hiccups in the form of sneaky credit card lenders, heres what you need to know:

1. If you absolutely have to use your card to purchase necessities , try to use just one card for your purchases. If your credit limit wont allow you to do so, then use as few cards as possible to make those purchases. Credit card lenders can dispute your bankruptcy filing if they believe you have been juggling your credit to make multiple purchases. On that note, keep all of your receipts that way, if lenders dispute your charges, you can prove it was for essential items.

These tips and techniques will help you eliminate one more obstacle in the form of your credit lenders and make your bankruptcy filing go much smoother.

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Is This An Old Debt

Credit Card Debt In Chapter 7 Bankruptcy

After making sure that the debt in question is yours, check to see if it’s “time-barredâ or too late to sue you. Credit card companies only have a certain amount of time to bring a case in civil court. Depending on state law, this can range between 2â6 years. Youâll want to check your local rules to see what statute of limitations applies. Time generally begins to run from the date of your last credit card payment. If too much time has passed, you can say so to the judge and your case should be dismissed.

Do You Recognize The Debt

The debt in question may not be yours. Credit card companies generally donât want to take legal action unless youâve made zero payments for about six months and ignored their calls. A lawsuit is a last resort. So long as youâve been communicating with credit card companies and making monthly payments on time, even if itâs less money than what you owe, theyâre less likely to sue. But that doesnât mean they wonât. So if youâve been sued, make sure that the creditor bringing the suit has targeted the right account holder. If youâve been making good faith repayment efforts, the creditor filing suit may be going after the wrong person.

When youâre sued, youâll be served with two legal documents:

  • A court summons ordering you to appear in court giving the time, date, and location, and

  • A legal complaint describing the basis of the claim and stating how much you owe

Taking into account a high interest rate and late penalties, the amount should still be one you recognize. The suing party should be the credit card company or place where you have a bank account . The party being sued should be you or a co-signer of the account. If you have no idea who the plaintiff is , the situation could be a case of:

  • Identity theft or credit card fraud: You didnât make or consent to the purchases.

  • Mistaken identity: Someone opened a credit card account or did business with a company you donât recognize.

  • Clerical error: The credit card company made a mistake in bookkeeping.

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.

Chapter 13 Bankruptcy For Credit Card Debt

Chapter 13 bankruptcy is called reorganization and unsecured debt, like credit cards, is given a very low priority in the reorganization.

When you file for Chapter 13 bankruptcy, you submit a plan to the bankruptcy trustee that says you will pay most, if not all, of what you owe in three to five years. The next step is to prioritize the debts, starting at the top with secured debts , and priority debts .

Unsecured debt, like credit cards is at the bottom of the priority list.

The Chapter 13 filer then looks at his current and future income and determines how much will go to repay debts in a 3-5 year period. Very little, if any, is set aside for credit card debt.

If the bankruptcy trustee agrees with the plan, and the consumer makes the required payments, all debts are discharged, including credit card debt, when the final payment is made.

Because Chapter 13 bankruptcy does not put much emphasis on repaying unsecured debt, its likely most, or all of what you owe on credit cards will disappear with a successful discharge.

Wipe Out Credit Card Debt And Most Other Nonpriority Unsecured Debts

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Bankruptcy is very good at wiping out unsecured , medical bills, overdue utility payments, personal loans, gym contracts. In fact, it can wipe out most nonpriority unsecured debts other than school loans.

The debt is unsecured if you didn’t promise to give back the purchased property if you didn’t pay the bill. By contrast, if you have a secured credit card, you’ll have to give the purchased item back. Jewelry, electronics, computers, furniture, and large appliances are often secured debts. You can find out by reading the receipt or credit contract.

How To Get Rid Of Credit Card Debt Through Bankruptcy

Excessive debt is one of the major reasons why people file for bankruptcy. In many cases, the excessive debt is the result of paying for necessities such as medical bills and vehicle repairs. While there are some exceptions, most credit card debt can be discharged when a person successfully completes Chapter 13 or Chapter 7 bankruptcy.

Where Bankruptcy Doesnt Help

Bankruptcy does not necessarily erase all financial responsibilities.

It does not discharge the following types of debts and obligations:

  • Loans obtained fraudulently
  • Debts from personal injury while driving intoxicated

It also does not protect those who co-signed your debts. Your co-signer agreed to pay your loan if you didnt, or couldnt pay. When you declare bankruptcy, your co-signer still may be legally obligated to pay all or part of your loan.

Garnishments From Credit Cards

Once they obtained the judgment they can move forward with garnishing a borrowers wages. If your wages are being garnished filing for bankruptcy may be the quickest way to stop the garnishment. Immediately after a Chapter 7 or Chapter 13 bankruptcy case is filed an automatic stay will be enacted. The automatic stay requires all collections efforts to immediately stop, including garnishments. Additionally, you may be able to discharge the credit card judgment in Chapter 7 or Chapter 13 bankruptcy.

When Is Credit Card Debt Not Discharged By Chapter 7 Bankruptcy

Wipe out credit card debt through bankruptcy
  • Charging one creditor more than $675 on “luxury” goods or services within 90 days of filing for bankruptcy.
  • If you have received a cash advance in excess of $950 from any creditor within 70 days of filing for bankruptcy. In regard to the interpretation of “luxury” purchases and cash advances: the burden of proof is on you to prove you thought you could reasonably pay off your debt. 
  • Material falsehood on your credit card application to deceive the creditor, such as falsifying your gross income.
  • When taxes are paid with a credit card, this credit card debt cannot be discharged.
  • Discharging credit card debt with bankruptcy only applies to the debtor filing for bankruptcy. It does not include any cosigners or guarantors. Anyone else who is responsible for your credit card charges will still be liable for the debt after you file for bankruptcy.
  • File Your Bankruptcy Petition

    If you retain a Chandler bankruptcy attorney, they will take care of this step for you. Otherwise, it will be your responsibility to file your bankruptcy petition, with all of its accompanying documents, with the bankruptcy court. You should receive a letter from your bankruptcy trustee in about 10-15 days. This will tell you your court date for your 341 Meeting of Creditors, and your trustee will likely request additional documents in support of your petition.


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