How Bankruptcy Laws Deal with Credit Card Debt

Anyone in over their head with credit card debt knows how difficult it can be to get out of it. Many people take years to get rid of their credit card debt, and when that over-extension of credit is combined with a job loss, income reduction, medical emergency or other financial pressure, it quickly becomes impossible. As soon as you begin falling behind on monthly payments, it get much worse very quickly, with late fees and interest increases that make minimum payments that much more difficult to maintain.

The Bankruptcy Court

Once a bankruptcy petition is filed, debtors get some breathing room by way of an automatic stay which halts all creditor collection attempts. At that point, the bankruptcy trustee begins looking into the debtors financial situation to determine which creditors will be repaid and which will not.

Chapter 7

In a chapter 7 case, which is the most common, unsecured debts like credit cards and personal loans are usually discharged, meaning the claims agains the debtor are legally erased and that debt will never need to be repaid. A chapter 7 case can be completed in as little as 60 days, and when proper planned, can result in the petitioner freeing themselves of all unsecured debts while keeping all of their property.

Chapter 13

In a chapter 13 case, the trustee, petitioner and his/her attorney work out a monthly payment plan that is based solely on the petitioners monthly "disposable" income, regardless of value of debts. This can be great news for petitioners with little income but a large amount of debt. Imagine paying only $100 per month on $50,000 of credit card debt. No other debt solution can do what bankruptcy can.

Is Bankruptcy Right for Me?

This is a difficult question to answer, and really depends on an individuals particular financial circumstances. Generally speaking, if you are unable to repay all unsecured debts in a three year time frame, then many financial experts believe bankruptcy is the better option.

Talk to a Bankruptcy Lawyer to learn more about what bankruptcy laws offer and how they can be used to eliminate unmanageable debt and give you the fresh start promised by the bankruptcy court.