Can you use bankruptcy to eliminate credit card debt? Yes, you can--bankruptcy can be an ideal tool for getting rid of excessive credit card debt.
What Bankruptcy Does
Bankruptcy is a process for giving debtors a fresh start. It does this by discharging, or eliminating, debt. There is a price to be paid for the discharge: depending on the type of bankruptcy chosen, the debtor will either have many of his or her assets liquidated for the benefit of creditors (Chapter 7), or else have to live under a court-ordered budget or payment plan for several years, while paying creditors what he or she can (Chapter 13). In both cases, the idea is to pay creditors as much as possible, then cancel or discharge the remaining debt.
Of course, it's not quite as simple as all that. (It never is). There a few types of debts whose discharge is barred for reasons of public policy--for example, alimony and child support obligations can't be discharged, since otherwise, someone else, such as the taxpayer, would need to step in to provide support. Also, secured debts must either continue to be paid, or else the lender can foreclose on or repossess the property serving as collateral.
Why Bankruptcy Can Kill Credit Card Debt
However, credit card debt is a common consumer debt--it's not one of those few categories barred by law from discharge. Also, it's not secured debt--there is no collateral or security for credit cards (except for that tiny minority of credit cards which are secured by a cash deposit). They are uncomplicated, unsecured debt: the very kind of debt bankruptcy is designed to take care of. Therefore, a consumer who is in financial distress and burdened by credit card debt can use bank bankruptcy as a mechanism to get out from under it.
How an Attorney Can Help
Filing bankruptcy is not without its consequences. As noted above, in Chapter 7, many of the debtor's assets will be liquidated, while in Chapter 13, the debtor will have to live according to a stringent, court-ordered payment plan. In addition, bankruptcy will stay on a credit report for 10 years, which means it will negatively impact credit for a long time. All that said, it is a powerful tool, especially for someone suffering from the kind of debt, like credit card debt, it is optimized to resolve. A bankruptcy attorney can help a debtor understand when bankruptcy, and which kind of bankruptcy, is appropriate for his or her own unique situation.
