Qualifications For Filing For Chapter 7 Credit Card Debt Bankruptcy
You can pass the means test in one of two ways.
If your family’s income is less than the “median” or the average income a family of the same size earns in your state, you’ll qualify automatically. If your family’s income is higher than the median, the means test will calculate whether you have income left over to pay creditors after considering reasonable living expenses.
If you fail the means test because you have disposable income you can use to pay creditors, you might still qualify for a Chapter 7 case in a few unusual instances. For instance, you might qualify if most of your debt is business debt, you’re an active military member, or you have other particular circumstances such as higher medical or utility costs than the average family.
Can You File Bankruptcy On Credit Cards Only
According to the CNBC, 43 percent of card holders carry a balance each month, and the Federal Reserve reports that outstanding card debt hit a record $1.023 trillion in November 2017. Rising credit card debt is a leading reason why Americans get into a financial hole and wind up being threatened with foreclosure on their homes.
If you have reached the point where your credit card and other debt have become overwhelming, filing for bankruptcy may be your best option. Bankruptcy, a legal way to have many debts forgiven, can eliminate credit card and other unsecured debt, and may still allow you to keep your home.
Should I File For Bankruptcy For Credit Card Debt
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In a Nutshell
Written byAttorney Jonathan Petts.
People file for bankruptcy relief for many reasons. In most cases, the person experienced a financial hardship that resulted in the inability to repay their debts. If you are struggling with debt you can’t pay, a Chapter 7 bankruptcy case might be an affordable way for you to get out of debt.
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What If Debt Has Already Gone To Collections
The good news is that filing a bankruptcy petition can put a stop to those collections calls. Every bankruptcy filing triggers an automatic stay on collections efforts. As soon as the credit card companies learn you have filed for bankruptcy, they must go to the bankruptcy trustee, not you, to collect their debts.
Often, you may not begin considering bankruptcy until after your credit card debt or other debts have already gone to collections. It may be the creditors collection efforts that sends you to a bankruptcy attorney. The good news is that filing a bankruptcy petition can put a stop to those collections calls. Every bankruptcy filing triggers an automatic stay on collections efforts. As soon as the credit card companies learn you have filed for bankruptcy, they must go to the bankruptcy trustee, not you, to collect their debts.
This also applies to collections lawsuits filed by the credit card companies to collect outstanding credit card debts. Those lawsuits are put on hold until your bankruptcy is finished. If there is anything left to collect, they will continue after the final discharge. Otherwise, they will be dismissed. On the other hand, if a creditor has already received a judgment against you for outstanding credit card debts before your bankruptcy is filed, that judgment creates a secured debt, like your mortgage or car loan. It will survive your Chapter 7 bankruptcy, but it may be paid off through liquidation or as part of your Chapter 13 payment plan.
What’s The Difference Between Chapter 7 And Chapter 13 Bankruptcy
Chapter 7 and Chapter 13 are the two common types of bankruptcy that affect consumers. Either could help when you don’t have the means to pay all your bills, but there are important differences between the two.
A Chapter 7 bankruptcy can wipe out certain debts within several months, but a court-appointed trustee can sell your nonexempt property to pay your creditors. You also must have a low income to qualify.
A Chapter 13 bankruptcy allows you to keep your stuff and get on a more affordable repayment plan with your creditors. You’ll need to have enough income to afford the payments and be below the maximum total debt limits .
A court will approve the Chapter 13 repayment plan, which usually lasts three to five years, and your trustee will collect your payments and disburse them to your creditors. Once you finish the plan, the remainder of the unsecured debts is discharged.
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Capital One Platinum Secured Credit Card
Capital Ones Platinum Secured card is promoted with a rebuilding credit level meaning anyone who has defaulted on more than one loan may qualify.
The Platinum Secured card requires a deposit to establish a credit line as with most secured cards. But only a small deposit of $49, $99 or $200 is needed to earn an initial credit line of $200 depending on the terms of your offer.
Other perks include:
- No foreign transaction, replacement card or authorized user fees
- Ability to check for pre-approval without a hard credit pull
Filing Bankruptcy For Credit Card Debt
Most bankruptcy filers can get rid of or “discharge” credit card debt in bankruptcy. Credit card debt is wiped out in Chapter 7 after about four months. In Chapter 13, you’ll pay back a portion of what you owe, but any amount not paid through your repayment plan is erased at the end of the case.
However, if the credit card company can prove that you used your credit cards fraudulently, the court can order the debt not discharged, and you will have to pay it back. So it’s essential to know when to stop using credit cards before bankruptcy.
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Signs That Your Credit Cards Are Pointing You Towards Bankruptcy:
Exceptions For Eliminating Debt With Chapter 7 Bankruptcy
While there are plenty of reasons to eliminate credit card debt through Chapter 7 bankruptcy, there are two major reasons you would not have the debt successfully discharged:
- You incurred debt on your credit card as the result of fraud
- You used the credit card to purchase property that the creditor has a security interest in, such as a high-end appliance or piece of jewelry.
The issue of fraud could be the result of you making false statements that allowed you to get the credit card in the first place. For example, over-stating your income on your application or possibly doctoring or counterfeiting a credit card to make purchases.
It also is considered fraud when you use the credit card to make luxury purchases of more than $725 or took a cash advance of more than $1,000 within 70 days of filing bankruptcy. In other words: If you know youre going to file bankruptcy, dont go running up tabs on your credit card.
The second reason is rare, but could result in purchases you made, being repossessed. If creditors see that you bought a top-of-the-line appliance or living room furniture or gold and diamond jewelry, that could be considered secured debt. They could call it collateral and ask for it.
The debts for these purchases can be wiped out, but you wont be permitted to keep the property.
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Who Qualifies For Chapter 7 Bankruptcy
There are a few requirements you’ll need to meet to file for a Chapter 7 bankruptcy:
- You generally must complete an individual or group credit counseling course from an approved credit counseling agency within 180 days before filing.
- Either the average of your monthly income during the previous six months must be less than the median income for the same-sized household in your state or you must pass a means test, which determines if your disposable income is high enough to make partial payments to unsecured creditors. If you don’t pass the means test, you may still be able to file a Chapter 13 bankruptcy.
- You can’t have filed a Chapter 7 bankruptcy during the past eight years.
- You can’t have filed a Chapter 13 bankruptcy during the past six years.
- If you tried to file a Chapter 7 or 13 bankruptcy and your case was dismissed, you have to wait at least 181 days before trying again.
- You may be eligible to file, but a court could dismiss your case if it determines you’re trying to defraud your creditors. For example, if you take out a loan or use credit cards with the intent of then declaring bankruptcy to avoid repaying the debt.
Use Credit Cards With No Spending Limit Sparingly
Depending on your credit card usage habits, having a credit card with no spending limit could have a negative impact on your FICO score. Credit cards that have no spending limit report their cards to the credit reporting agencies in one of two ways, or a) as an open account or b) as a revolving account. If the credit card is reported as an open account it will have no impact on the debtors credit rating. However, if the credit card account is reported as a revolving account it could have either a negative or a positive impact on the debtors credit report depending on how the debtor uses the credit card.Debtors who keep a high balance on the revolving credit card account which has no spending limit could be dinged for having a high utilization of the credit on the card. Any credit card which shows that the debtor uses 50 percent or more of the credit limit will have a negative impact on the debtors credit score because of the high utilization factor. If debtors want to avoid lowering their credit score they may want to limit their usage of these types of credit cards.For post-bankruptcy debtors, credit cards which have the tendency to negatively impact their credit score should be avoided. For those exiting bankruptcy, every FICO point lost or gained can have a huge impact on their ability to get a mortgage, car loan or other types of credit especially since they are in the rebuilding phase of their credit history.
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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.
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.
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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.
Bankruptcy May Help Relieve Your Debt Obligations But It Will Impact Your Credit For Years
Bankruptcy is a special legal proceeding you can use to reorganize or get rid of your debt, depending on your financial situation. Bankruptcy can be helpful if youre overwhelmed with financial commitments, but it could also negatively affect your credit. A bankruptcy will generally stay on your reports for up to 10 years from the date you file.
I refer to bankruptcy as kind of Armageddon on someones , says Freddie Huynh, vice president of data optimization for Freedom Debt Relief.
The good news is your credit can gradually heal if you take the right steps. Heres what can happen to your credit reports when you file for bankruptcy.
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You Cant 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 youll 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 issuers 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.
So What Can We Do To Get Out Of Credit Card Debt
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