Filing Bankruptcy on Credit Card Debt

Credit Cards can become a life-saver in difficult financial times, but can also come back to haunt us. Many consumers have relied on credit cards to sustain themselves, but end up with $10,000, $30,000 or more in debt that becomes unbearable. Filing bankruptcy due to excessive credit card debt is not uncommon, and provides protection from the credit card companies. Chapter 7 will eliminate all unsecured debt, including credit card debt, without any fear of a lawsuit or other attempt to collect the debt.

Chapter 13 on the other hand, will help consumers create a repayment plan at a much lower interest rate, and force the credit card companies to accept the proposed lowered payments.

Both types of bankruptcy are suited for different people in different financial situations. You bankruptcy lawyer will advise you on the best option for your case, and ensure that you pay as little as possible while maintaining as much property and assets as possible. Bankruptcy is a tricky law with a lot of loopholes and rules, so make sure your attorney is experienced in handling consumer bankruptcy cases.

Common Concerns Regarding Credit Cards and Bankruptcy

1. Can I File Bankruptcy on Credit Cards Only?
2. Bankruptcy and Spouses Joint Credit Cards
3. Pre-Bankruptcy Spending
4. Can the Credit Card Company Sue Me?
5. Can I Keep My Property?

Can I File Bankruptcy on Credit Cards Only?

Can I file bankruptcy to get rid of credit card debts only? When you file bankruptcy, you may be allowed to "reaffirm" some debts, which means you continue to make payments as usual, and keep whatever property the debts are secured by. So it would be possible to file either chapter 7 or chapter 13, and reaffirm all debt except your credit card debt.

The laws vary by state, especially regarding with assets are exempt, and how different types of debt can be reaffirmed. Your bankruptcy attorney will be able to assess your situation and advise you on how to pull it off.

Effect of Bankruptcy on Joint Credit Cards

If you and your spouse have joint credit card debt, and are both equally responsible, you will both need to file bankruptcy to eliminate the debt. Otherwise, the spouse or other joint party will still be responsible for paying back the credit card company.

There are some situations where this is not true, such as someone who added another person to their credit card AFTER the debt had been accumulated. IN this case, only that debt that was created after the joint account was established would be jointly liable.

Pre-Bankruptcy Spending

As a general rule, any significant debt (usually over $600) acquired within 60-90 days of filing bankruptcy may not be eligible for discharge. This means that the bankruptcy petitioner will still be required to repay the debt per the credit card guidelines. Again, the laws vary by state, so always ask your bankruptcy attorney for advise on your situation.

Can the Credit Card Companies Sue Me?

No. Once you file for bankruptcy protection, all attempts to collect debt are legally halted. The credit card companies may not sue you, send collection letters, or even call you, until the bankruptcy court has concluded their case. Even then, the credit card companies are legally bound by whatever the bankruptcy court decides regarding repayment. With chapter 7, the likely case is that credit card debt will be discharged (wiped out) completely.

In chapter 13 bankruptcy, credit card companies will be forced to accept whatever repayment plan your attorney and the bankruptcy trustee create for you. Generally, the repayment plan will significantly reduce your payments, and create a realistic 3-5 repayment time line.

Can I Keep My Property?

Many people wonder what happens to the property purchased using credit card if they file bankruptcy. This all depends on the types of bankruptcy that is chosen. In general, a chapter 7 bankruptcy will liquidate many of the assets in order to repay some of the debt. Now, there are always options to keep certain property, should you choose to "reaffirm" the debt.

Alternatively, if chapter 13 is chosen, no property will be taken away, but you will need to stick to the repayment plan that your bankruptcy lawyer and trustee work out.

Always Get Legal Advice

Before making any decisions about bankruptcy, always get advice from a bankruptcy lawyer. If you are in serious financial trouble, DO NOT begin digging into 401k's or IRA, and certainly do not begin trying to sell any property. Bankruptcy laws offer considerable protection for people who have "become in over their head" and can save tens of thousands of dollars compared to other options.