Filing Bankruptcy Due to Too Many Credit Cards

If you are like most Americans, you are likely drowning in credit card debt. For many people that find themselves with too many credit cards, bankruptcy is often a last resort. By filing bankruptcy, you may be able to decrease or even eliminate your credit card debt.

Credit Cards and Bankruptcy

There are primarily two types of bankruptcy for individuals wishing to wipe out credit card debt. A Chapter 7 is a liquidation, in which most unsecured debt is discharged, while a Chapter 13 is a repayment plan.

Chapter 7

Chapter 7 is the simplest type of bankruptcy. In just a few months, a debtor can eliminate most of their unsecured debt, such as credit cards and medical bills, and start again with a clean slate. Although some unsecured debts may not be discharged, such as child support and student loans, many other types of debt are easily wiped away.

The downside of a Chapter 7 bankruptcy is that many debtors are not eligible due to relatively strict income requirements. The U.S. Trustee’s office drew a line in the sand with the amendments to the bankruptcy code in 2005, and anyone with an income above that line is not eligible for a Chapter 7. 

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. Depending on their income, in Chapter 13, most debtors will repay at least a portion of their unsecured debt. If a debtor has a large disposable income, they will be required to repay a larger percentage of their unsecured debt. 

Chapter 13 payment plans are set up from 3 to 5 years and are used to restructure secured debt, such as car payments and mortgage arrears, as well as whatever portion of unsecured debt that must be repaid. The payment plan also includes the Chapter 13 Trustee’s administrative fees and the debtor’s attorneys’ fees if applicable. Priority unsecured debt that is not dischargeable, such as child support and certain taxes are often paid through the plan also.

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.