Credit card debt has caused many people to file bankruptcy. Although many bankruptcy laws changed in 2005 to make the process more difficult, most people are still eligible to file bankruptcy and eliminate most, if not all, of their credit card debt.
Types of Bankruptcy for Credit Card Debt
For individuals seeking to resolve credit card debt, there are two bankruptcy options: Chapter 7 and Chapter 13. A Chapter 7 completely absolves credit card debt, while a Chapter 13 is a repayment plan.
Chapter 7
Chapter 7 is a complete liquidation of debt. While a debtor may keep secured property and continue paying for it, most unsecured debt is absolved through the bankruptcy process. Certain debts are not dischargeable, such as certain taxes, child support, or student loans. When it comes to credit cards, the primary debts that would be non-dischargeable are cash advances within 70 days of filing bankruptcy, luxury items within 90 days of filing, or credit obtained by fraud.
This type of bankruptcy is not available to every debtor, however. There are certain income requirements that must be met in order for a person to be eligible for Chapter 7. If your income is above the allowable amount, you will be forced to file a Chapter 13 bankruptcy.
Chapter 13
The purpose of the changes in the bankruptcy law in 2005 was to compel more debtors into Chapter 13 bankruptcy, which is a repayment plan, as opposed to Chapter 7, which is liquidation. In a Chapter 13, most debtors will repay at least a portion of their unsecured debt, such as credit cards. The amount they are required to pay depends on their income, expenses, and disposable income. Chapter 13 payment plans are also used to restructure secured debt, such as vehicles or mortgage arrears.
The payment plans are set up from 3 to 5 years and payments are made to the Chapter 13 Trustee’s office, who then distributes them to creditors. The Chapter 13 Trustee’s office actually represents unsecured creditors, such as credit card companies, and works diligently to maximize the amount of money they receive. However, the Trustee’s office is also paid through the Chapter 13 payment plan for their administrative fees.
Seeking Legal Advice
If you are considering filing bankruptcy, you should seek the advice of a licensed attorney that specializes in bankruptcy law. Because bankruptcy is a very precise area of law, a specialist will be more advantageous than a general practitioner.
