Credit Card Deals and Bankruptcy: Answers to Various Questions

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Well all know a little bit about bankruptcy and many of us think we know much more than we actually do. We know that bankruptcy can affect our ability not only to get good credit card deals, but just flat out get any credit card deals at all. We know that bankruptcy has a very bad effect on our credit rating and can single-handedly turn a good credit history into a bad credit history.

In short, we know that it's a bad thing and that we should do everything in our power to stay away from it. While that definition is true and accurate, it's hardly sufficient. With the goal in mind of educating the reader, here are some common questions about bankruptcy as well as the answers to those questions:

Is Bankruptcy the Sign of Ultimate Failure?

While it is very true that bankruptcy is a last resort that is only used once all other hope has been exhausted, it is not necessarily indicative of failure. It might be better to look at bankruptcy as the end of a round. You've thrown in the towel this round, but are raring up and ready to go for the next one.

It might interest you to learn that some of the most successful businessmen in history actually had to go through bankruptcy as well. H. J. Heinz, founder and creator of the Heinz Company known for their top selling ketchup and condiment products, was actually forced into bankruptcy by his creditors, only to return and build an empire that still exists today.

Walt Disney, founder of the Disney Corporation that has brought us all those wonderful videos, was also a victim of bankruptcy. In fact, his bankruptcy was so bad that he suffered a nervous breakdown because of it!

Milton Hershey was also a victim of bankruptcy, but he returned and built a chocolate company that to this day is still considered number one in its field.

Last but certainly not least, did you know that the Ford Motor Company was actually Henry Ford's third attempt at a car company? His first one went bankrupt and his second one folded.

The point I'm trying to make here is that while bankruptcy might be a setback in the now, you need to think along the road. What's done is done and there is nothing that can be done about it now, but adopting a defeatist attitude will get you nowhere.

How Do I Avoid the Risk of Bankruptcy?

Paying bills on time is a good way to start!

But a little more seriously, there are many steps you can take to make sure that your credit card deals remain sweet and that the credit card company doesn't come after you and suggest bankruptcy. The first and foremost step to be taken is to arm yourself with knowledge.

The relationship between creditors and debtors is almost like a game of sorts and the side that knows more about the rules of the game ends up winning the prize. In this game, bankruptcy is a declaration saying that you give up and will just start over again. That having been said, how can you figure out how to avoid bankruptcy without even knowing anything about it? Definitely, the first step to avoiding bankruptcy is learning about it.

In the United States, bankruptcy is governed by the Bankruptcy Code, the most recent addition to which has been the Abuse Prevention and Consumer Protection Act. Enacted in 2005, this act caused a major stir in the bankruptcy code, shaking many sections up and causing a fundamental shift in the way bankruptcies are reviewed. No matter what your situation is (individual, small business owner or just interested 3rd party), the best way to counter something is to understand it.

What Are the Major Types of Bankruptcies?

Well, that's still the same as it was before the Abuse Prevention and Consumer Protection Act was put into place. There are three major types of bankruptcies and there primary names are given to them based on the chapter of the bankruptcy code that details how they work. The three types of bankruptcies are chapter seven, chapter 11 and chapter 13 bankruptcies.

A chapter seven bankruptcy is the most heard about kind of bankruptcy and for that reason is sometimes referred to as a straight bankruptcy or even just a bankruptcy. It's the kind of bankruptcy that happens at the end of a game of monopoly, where all your credit card deals go down the drain, all your assets are liquidated and all the money obtained from the liquidation is used to repay your creditors as much as possible. Any additional debt is erased off the books and while you are now debt free, you have a bankruptcy to deal with on your credit report for the next decade, a very long time indeed.

The other two types of bankruptcies are chapter 11 and chapter 13 bankruptcies, both of which involve re-tooling and re-organization rather than liquidation. These bankruptcies are intended to allow the court to moderate an agreement that is worked out between debtor and creditors that structures a repayment schedule that a) satisfies the creditors and b) is possible for the debtor to maintain.

The main difference between the latter two is the chapter 13 bankruptcies tend to be invoked more by individuals and chapter 11 bankruptcies more by businesses.

How Does the New Legislation Affect the Different Bankruptcies?

The answer is the new law will have a big effect. Chapter 7 bankruptcies under the new system are much harder to obtain, both for small business owners and for people seeking individual bankruptcy.

The reason for this law being put into place is a rising amount of abuse both by individuals and business owners. The trade-offs of a bankruptcy to remove a large amount of debt, while not desirable are certainly better than the alternative. There were also people filing and willfully withholding information about additional assets and events.

The new legislation is meant to hold both individuals and companies more accountable for their actions. If they defaulted on their great credit card deals or failed to report a change in their good credit, the new law makes it harder for them to take bankruptcy as a way out.

What Are the Good Points of This Change?

This eases potential pressure on creditors such as small business owners. With individuals not being as easily able to file a chapter 7 bankruptcy, they will be forced into a chapter 13 which if you remember from above is not liquidation, but rather reorganization. This means that creditors will have a chance now to get their money back in full in more cases. For small businesses, this could result in a mini boom over time as that extra money comes in (slowly albeit, but surely).

What Are the Bad Points of The Change?

The system has become much more rigid and is less forgiving of debtors. While there have been many cases of bankruptcy abuse in the past and in general the abuse has been on the rise, there were also many honest debtors who seriously felt that bankruptcy was their only way out. Unfortunately, the law makes it just as hard for these people to get through a chapter 7 bankruptcy as it does for others, as there is no way for the law to be able to discern between the two types.

Hopefully these questions went a long way toward answering the main concerns and questions that you had about bankruptcy and especially about the new legislation that was put in place just a couple of years ago. Bankruptcies are long term propositions, so many of the effects of the law still haven't been felt by many of the people involved yet. As you can see, this law as both good points and bad points and does a lot to crack down on people using their credit rating and report as a means to abuse the system.

If you're still interested in bankruptcy, I would suggest that you take a look online at US trustee website, which has a much more complete and comprehensive explanation of just exactly what it is and just exactly what is involved.

Remember though, bankruptcy should only be considered a last resort. Bankruptcy precludes your ability to get any credit card deals, participate in reward programs or do anything that requires fair credit or good credit. It can single handedly be responsible for turning an excellent credit rating into a bad credit rating and for this single reason alone, should be entered into with the utmost care and extreme caution.