Many individuals find themselves in a significant amount of credit card debt at some point in their lives. While some may find a way to climb out of it, others may need to consider filing for bankruptcy. Filing for bankruptcy may help eliminate credit card debt, but it also has its consequences. This article will provide information on filing for bankruptcy for credit card debt, its effects, and frequently asked questions.
Chapter 7 and Chapter 13 Bankruptcy:
Individuals looking to file for bankruptcy for credit card debt must choose from chapter 7 and chapter 13 bankruptcy. Chapter 7 bankruptcy is for individuals with little to no income who cannot pay their debts. The court appoints a trustee who sells assets and uses the proceeds to pay the creditors. Chapter 13 bankruptcy allows individuals with an income to pay their debts over three to five years. The court approves a repayment plan, which requires individuals to make regular payments.
Eligibility for Bankruptcy:
Individuals must meet specific criteria to be eligible for debt discharge through bankruptcy. In the case of chapter 7 bankruptcy, individuals must meet the means test, which is a calculation of income and expenses. If the calculation shows that an individual has little or no income after paying expenses, they qualify for chapter 7 bankruptcy. In chapter 13 bankruptcy, individuals must have a steady income and debts within set limits.
Credit Card Debt in Bankruptcy:
Credit card debts are dischargeable in bankruptcy, but there are some exceptions. Debts incurred through fraud, illegal activities, or intentional misrepresentation by the debtor are not dischargeable. Debts incurred within the last 90 days before filing for bankruptcy are also not dischargeable. If an individual is unsure if their credit card debts meet the criteria for discharge, they should consult a bankruptcy attorney.
Effects of Bankruptcy on Credit Score:
Filing for bankruptcy can have significant effects on an individual’s credit score. Chapter 7 bankruptcy remains on a credit report for ten years, and chapter 13 bankruptcy remains on a credit report for seven years. Bankruptcy may lower an individual’s credit score by 200-250 points.
Rebuilding Credit Score after Bankruptcy:
Rebuilding credit after bankruptcy takes time and effort. Individuals should start by obtaining a secured credit card to prove their creditworthiness. They should make regular payments and keep the balance low. After six to twelve months of on-time payments, individuals can obtain an unsecured credit card or a loan.
1. Can all credit card debts be discharged in bankruptcy?
Credit card debts are dischargeable in bankruptcy, but some exceptions apply. Debts incurred through fraud, illegal activities, or intentional misrepresentation by the debtor are not dischargeable.
2. What type of bankruptcy should be filed for credit card debt?
Individuals should file for chapter 7 or chapter 13 bankruptcy for credit card debt. Chapter 7 bankruptcy is for individuals with little to no income, and chapter 13 bankruptcy is for individuals with an income who can pay their debts over time.
3. How long does bankruptcy remain on a credit report?
Chapter 7 bankruptcy remains on a credit report for ten years, and chapter 13 bankruptcy remains on a credit report for seven years.
Bankruptcy may be an option for individuals struggling with credit card debt. However, it has long-term effects on an individual’s credit score and should be considered as a last resort. Individuals should consult a bankruptcy attorney to determine if bankruptcy is the right course of action for their situation. They should also work to rebuild their credit after bankruptcy by making regular payments and obtaining credit gradually.
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Bankruptcy may be an option for individuals burdened with credit card debt, but it has long-term effects on an individual’s credit score and should be regarded as a last resort. Individuals must choose between chapter 7 and chapter 13 bankruptcy depending on factors like income and inability to pay debts. Credit card debts are primarily dischargeable in bankruptcy, but there are some exemptions, and eligibility depends on specific criteria like means test and debts within set limits. Individuals should consider consulting a bankruptcy attorney and practice rebuilding their credit gradually.