Filing bankruptcy for credit card debt depends on people’s options. Once credit card debt moves from manageable to overwhelming, people look for ways to eliminate or pay off the debt. Often, filing bankruptcy is the debt management options of last resort. However, it should be considered before deciding to place secured debt such as homes up as collateral to pay off credit card debt. Of course, the credit card debt is paid off when people try debt consolidation loans or second mortgages. However, in worse case scenarios, people can lose their homes if they can’t make payments. People considering filing bankruptcy to pay off credit card debt should think about several things.
Bankruptcy Options
Chapter 7 allows people to discharge, commonly referred to as eliminate, 100 percent of their credit card debt, according to Legal Helpers. This means that people aren’t responsible for repaying credit card companies any back payments, late fees, over the limit fees or interest charges. In addition, chapter 7 prohibits any wage garnishments from lawsuits or any legal proceeding credit card companies initiate.
Chapter 13 doesn’t discharge all credit card debt. Instead the bankruptcy option offers people a way to repay their credit card debt over time. Typically, people repay the debt in three to five years depending on the repayment plans created by their lawyers. In addition, filing chapter 13 stops all debt collection, lawsuits, wage garnishments and charges.
Filing Chapter 7 May Not Be Easy
The U.S. Congress has made some changes to the bankruptcy laws. These changes, according to the U.S. Federal Trade Commission (FTC), provide people with incentives for filing chapter 13 instead of chapter 7. For instance, people who are behind in their mortgage payments and facing foreclosure can keep their homes when filing chapter 13. That’s not possible under Chapter 7. Also, people must pass a means test when considering filing bankruptcy. If they have money left over, they have to file chapter 13 instead of chapter 7. People seeking chapter 7 must turn over non-exempt property for bankruptcy trustees to sell to pay off their credit card debt. Exempt items include cars, basic household furnishings and work-related tools.
Seek Legal Advice
Bankruptcy lawyers can help people understand which bankruptcy option is best for them. For instance, people with constant, regular income qualify chapter 13, but not chapter 7. Also, bankruptcy lawyers provide advice on the rules when filing bankruptcy which include seeking debt counseling before filing.
