Can You File Bankruptcy On Credit Cards? 3 Things To Know

Key Takeaways:

• On average, 77% of American adults own a credit card, out of which 38% file for a Chapter 13 petition of bankruptcy.
• When a person is unable to repay the amount, they either opt for Chapter 7 or Chapter 13 since they are the two most reliable petitions.
• Several pieces of evidence need to be presented to get the relief. However, this also doesn’t guarantee the exemption from the debt payment.

Credit cards come in handy when people need fast cash. It allows the cardholders to borrow funds from the banks or financial services companies.

As convenient as it sounds, their overuse may lead to a complete financial downfall of the individual. As a result, one might have to submit a request for bankruptcy due to their incapability to repay the loans.

Compared to other alternatives such as loans and debts, credit cards have always been externally fascinating to people in need. Its internal functioning may work like cobwebs. So it is always wise to file one to get relief from, huge debts.

Tune in further to learn about the steps that need to be taken into account before filing for bankruptcy.

One thing to figure out before moving forward is, does the person concerned even qualifies for bankruptcy. If they don’t, opting for Chapter 7 is convenient. This is because it is the cheapest and fastest option to get out of financial ruin. 

However, it doesn’t mean it’s for everyone in every situation. For chapter 7, one has to pass the means test. To understand the measures or eligibility, consider taking a  Chapter 7 means test calculator. 

As mentioned before, failure is not a one-size-fits-all. Before taking any step to submit a request, it can be super helpful to reflect on future goals, like wanting to buy a house or a new vehicle.

NOTE: Chapter 7 allows one to liquidate their assets to pay back their creditors while being allowed to keep enough “exempt” to have a fresh start.Chapter 13 helps in creating a payment plan to repay the debts.

Filing Bankruptcy On Credit Cards

When one decides to file for bankruptcy on the credit line, it typically wipes it all clean. Credit card debt is considered an unsecured loan, which means it is not backed by any collateral. 

Since it is not backed by collateral, if a creditor wanted to take legal action against someone for late bank installment payments, they could file an unsecured collection lawsuit. After they do that, they can petition the court for a wage garnishment order or levy. 

It is pertinent to mention that not all states allow for wage garnishments, so make sure to be well-versed in the rights. Whether one applies for Chapter 7 or 13, it should get rid of most if not all of those loans. But remember, if the only reason for filing bankruptcy is because of the loans, try looking into other options as well. 

Looking for an attorney who will do a free phone or in-person consultation can be incredibly helpful in making the final decision about insolvency. One can even consult with multiple attorneys to gather information and see who quotes the most comfortable number.

Did You Know?
In 2019, a Report of Statistics Required by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was released. The results showed that 733,000 individuals had filed for bankruptcy petitions!

There is a case where the debts can’t be taken out of bankruptcy. If one tries to transfer charges onto their accounts that cannot be discharged, this would not work. Examples of that would be things like tax debt, alimony, child support, and more. 

Another thing to keep in mind is if there have been recent charges that are large or unnecessary, and try to claim it, it can be considered fraudulent. 

If a company decides to seek a lawsuit against a person in a financial crisis, and they did one of the things mentioned above, the charge may not be dischargeable. There’s a lot of work that needs to be put up to show it was not a fraudulent activity, which indicates that one isn’t automatically free from it. 

Instead of bankruptcy, some people might opt for a debt consolidation or loan settlement program to get rid of debts such as unsecured loans. However, there are pros and cons of these creditor relief strategies, just as there are.

Some people decide to use the equity in their homes to consolidate their monetary balances. This can be a huge risk, but can work for some people. It is noteworthy that the unsecured loan would now become secured by the equity in the home. When one fails to pay the home equity loan payments, they end up putting their home at risk. 

Thinking of going the mortgage settlement route? Then consider asking these few things:

• Is there enough money to afford monthly expenses?
• Are we financially lagging to even afford repayments?
• What are the legal risks involved with a financial settlement plan? 

The amount that the credit banking companies “write off” or “forgive” once it is all settled will now be classified as income by the IRS.  The tax returns have to be reported, which is something to keep in mind because it can create tax liabilities. 

Conclusion

Filing for bankruptcy may be a complex decision. Understanding the alternatives to it and taking a bankruptcy quiz can potentially help in estimating the costs and duration of various options to help make an informed decision about how to get out of debt once and for all.

Hopefully, this guide will be helpful for those who are on the journey to their financial freedom.

---