Credit Card Debt Bankruptcy

We realize that sometimes you have no choice but to file for bankruptcy. Some singles or couples are indeed too far in debt to ever find stable financial footing without finding relief through a bankruptcy filing.  Whether you haven't been able to find employment for months or for years or if you've had a major accident or health issue and found yourself under insured or uninsured, bankruptcy may be your last option after you've tried everything else to regain control of your financial picture.

Is Bankruptcy a Good Idea?

The first step when thinking about bankruptcy is to determine if it is really the best option for you.  To make this determination you should consider how deep in debt you are.  If you're debt payments far exceeds your monthly income this is a sign you should consider filing. 

But first explore other options. Bankruptcy is a very serious matter that will have ramifications on your ability to get loans, credit cards, and even employment for seven to ten years or perhaps longer.

Bankruptcy may be a viable option if you have had your wages garnished because of judgements or lawsuits, or perhaps if you haven't been subject to garnishment your bank accounts have been frozen.  If you find yourself in a either or both of these situations, especially on an ongoing basis, bankruptcy may very well be a good choice to start over.

Another angle to look at when assessing the appropriateness of bankruptcy is the type of debt you have.  If most of your debts are related to unsecured loans or credit this is another sign that bankruptcy is a viable and appropriate option. Unsecured debt can come in many forms such as credit card debt or medical or doctor's bills.  Things such as a mortgage and a car payment are considered secured debts as your house and vehicle, respectively, are assets a bank can take if you default on the loan made to purchase them.

Aggressive collection activity may be another sign that your situation may warrant a bankruptcy filing.  Are creditors calling you at home and at work? Are they attempting to call people you know to get in touch with you?  If you answer yes to these questions Chapter 7, 11, or 13 may be a good option. 

In addition to the above if you have lawsuits filed against you for unsecured or secured debt or for business reasons you may again want to consider bankruptcy. Bankruptcy does have the ability to dismiss financial judgements against you for certain items.  However, some debts such as past due taxes and student loans are not always allowed to be dismissed by a bankruptcy judge.

What Bankruptcy Options Do You Have?

There are three types of bankruptcy that are the most common forms of filing, with Chapter 7 far-and-away being the most commong type of filing.  Below we outline the most common types of bankruptcy to discharge things such as credit card debt in order for a person to get relief from their debts and start fresh.

1. Chapter 7

Chapter 7 Bankruptcy, also known as liquidation, is by far the most common type of bankruptcy filed.  Chapter 7 will generally discharge all of your debts with some exceptions.  Generally, the majority of your assets are liquidated except those items that are exempt, and the money raised from the sales are distributed to your creditors.

However, many times when a person or couple file for Chapter 7 they have few if any assets to be sold and therefore this can be a relatively fast bankruptcy process.  This process can move even faster if there are no objections from creditors, which many times there are not.  More often than not your debts can be discharged in less than six months from the time your attorney files a Chapter 7 Bankruptcy.

So how does this work? Under Chapter 7 a trustee that is appointed by the court will gather all assets that you have that are not exempt and sell them, then pay the appropriate creditors a percentage of the proceeds.  Unlike other forms of bankruptcy, the debtor (you) does not have to pay the trustee for this service.

On a positive note, under Chapter 7 Bankruptcy you can sign reaffirmation agreements with some creditors to keep things such as a car and a home. Please be sure to speak with an attorney about the specifics of keeping these and other assets after filing for bankruptcy.

2. Chapter 13

Chapter 13 differs significantly from Chapter 11 and Chapter 7 bankruptcies.  Chapter 13 is generally a good choice for those who have a regular income but are having a hard time keeping up with debt payments. Under Chapter 13 assets are not liquidated. Instead you and your attorney submit a repayment plan for creditors to pay off you debt with no accumulated interest. Your plan can be as long as five years, although it can be shorter as well.

Your creditors do not have to agree to the repayment terms but the court does. What does this mean? If you and your attorney create a plan that is acceptable to the court the creditors must accept it. Creditors are, however, allowed to file an objection which the judge may or may not grant.

So what is the advantage of Chapter 13?  The biggest advantage is that you don't have to repay the full amount of your debt. Your plan may account for 75% of your total actual debt paid back over 3 years. If the court accepts this plan, then at the end of the three year term, if you have strictly adhered to your repayment plan, the court will grant a full discharge of your debts without your having to liquidate any of your assets. Be sure to thoroughly discuss all of your options for bankruptcy with an attorney.

3.Chapter 11

Chapter 11 Bankruptcy is very similar to Chapter 13. Much like Chapter 13 it is designed for a reorganization of debt and, eventually, a full discharge upon emerging from bankruptcy.  Chapter 13 however is for Corporations and Partnerships.  The other main difference is that the fees for the court's trustees also tend to be much higher than for a personal Chapter 13 filing.

If you are a small business owner who has found themselves in financial trouble due to a number of factors, contact your attorney today about bankruptcy to see which chapter is the most appropriate for your situation.

The options can be confusing when considering bankruptcy to get help and relief from credit card debt and other debts like secured loans on a car or home. Be sure to speak with a government approved credit counselor or a qualified bankruptcy attorney before making any decisions.