The Truth about Credit Card Bankruptcy

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The Truth about Credit Card Bankruptcy

As much as everyone would like to avoid dealing with bankruptcy, the fact remains that bankruptcy is more common than many people would like to believe. Even for the everyday, average person, with too much credit card debt and not enough funds, bankruptcy may be their only option left. Without a watchful eye on one’s spending and other financial habits, bankruptcy can become a reality much quicker than expected. Anyone can go bankrupt; an individual, a business, the rich, the poor, anyone. Sometimes we may be surprised to hear that a company that seemed to be doing so well has filed for bankruptcy. Things may have looked good on the outside, but behind the corporation’s doors, not enough business was had and too many debts have built up, leaving them in the exact same pot as someone with too much credit card debt.

A number of people think that filing for bankruptcy will leave you debt free and able to start fresh. This is simply not the case. You will have to deal with a tiring legal process that will either allow your debts to be discharged or you will create a repayment plan in order to pay your creditors. If your debts are discharged, it means you no longer have to pay them. A part of your debts or all of them can be discharged, though usually you will have to pay something. It may sound like a great thing to file for bankruptcy and have all your debts discharged entirely, but it is unlikely to happen, and even if it does, it leaves a black spot on your credit report that will make it a lot more difficult for you to obtain a good credit card, mortgage, or other loan in the future. When you file for bankruptcy, you may also have your possessions or property taken away from you in order to be turned into money to pay your creditors. You should be at the end of your rope with no other way to pay your creditors before you file for bankruptcy.

There are several chapters of bankruptcy people or businesses can file under, but for this article we will only discuss chapter 7 and chapter 13 as they are the most common and most likely to be used in various situations. In either case, the outcome will not be pleasant.

Chapter 7, also known as straight bankruptcy, is the form of bankruptcy under which most of your assets will be sold off in order to pay your creditors. You will have to give a list to the trustee appointed to your case. The trustee will then be in charge of the liquidation of the assets. Some of your assets are protected, so do not panic because not everything can be taken from you. Protected items include unemployment pay, Social Security payments, household appliances, books, and some values of the equity in your home and car, as well as several other items. If you have any questions you can always as the appointed trustee for more information.

There are certain debts that you will not be discharged from, so you cannot go into court thinking you will be debt-free when you walk out the door. If you have to pay child support, you must still pay it. The same can be said of alimony, tax debts, fines (such as drunk driving fines), student loans, larceny, or other unlawful acts, and other specified debts. Even if it is decided that you will have certain debts discharged, if it is found that you have acted in a fraudulent manner during your time in court, such as falsifying information, lying under oath, or gave any false information to your lender.

Filing for Chapter 7 bankruptcy starts with filling out the specified forms and giving various information needed in order to process your application, such as your current debt amount, what your assets are, your income, and other such information. Be sure to have all possible information with you – leaving out a debt will mean it does not get included in your bankruptcy case and none of it will be discharged. Even worse, if you do not list all possible assets, you may find yourself in trouble for fraud and get into an even worse position.

One you file for bankruptcy, your creditors cannot take any of your income, money from your checking or savings accounts, suing you for not making your payments, or continuously shadowing you, demanding payment. You will find that some debts can be discharged and others will fall into the category of non-dischargeable. These are the debts that you will have to pay even after your bankruptcy case is closed.

A dischargeable debt can include a lot. These are the debts you will not have to pay back and creditors cannot request you make payments on them. If they do, you should inform them of the discharge and provide the documentation (copy only). If they still bother you, you should get an attorney and proceed from there. The following debts can be dischargeable, but remember, even if they do fall into this list, only parts of them may be discharged and not the entire debt: rent due to a landlord, utility bills (gas, phone, electric, etc.), credit or charge card debt, department store cards, gasoline credit cards, loans from friends and/or family, legal or medical bills, and unsecured loans.

The other common form of bankruptcy is Chapter 13 bankruptcy. This has also been called the wage earner chapter. Under this form of bankruptcy, the debtor will use a repayment plan in order to pay back his or her debts. This can help one to avoid liquidation of one’s assets. As long as the person has a consistent income, it will be possible for him or her to file for this chapter of bankruptcy. The plan will usually be a long one, lasting for up to 5 years. During this time, all payments the debtor makes will be to the trustee that has been appointed to his or her case. The debtor may be able to keep all property even if he or she is unable to pay off the full amount of the debt as long as he or she fulfills the obligations of the repayment plan. Some dischargeable amounts may apply under Chapter 13 bankruptcy, even if they did not apply under Chapter 7 bankruptcy, again, as long as the debtor completes the repayment plan.

There are no separate forms needed when filing for Chapter 13 bankruptcy; you use the same ones as you would for Chapter 7. You will also pay a filing fee as you would with Chapter 7 and receive a trustee to oversee your case. Instead of providing a list of your assets, you will provide the court with a repayment plan that must be approved by the court. Your plan should include any unsecured debts you owe, including credit card debts. If you have secured debts, you will either make plans to pay back an agreed upon amount between you and the creditor or else you. will surrender the collateral backing the credit or loan amount. The court will decide whether or not your repayment plan is acceptable.

The good part about Chapter 7 bankruptcy is it is much faster to complete than Chapter 13. Even if all your assets are liquidated and your credit history will show the bankruptcy filing, you still may have a clean slate when it comes to your debts, owning nothing and giving you the ability to start fresh and avoid this problem again. As long as you do not make any fraudulent claims or errors in your information and follow all court instructions accordingly, you could be free of debt and able to start again from square one.

On the other hand, Chapter 7 bankruptcy is fraught with negative aspects, as most bankruptcy cases are prone to be. You will lose a great deal of your property (though the bankruptcy is not going to leave you homeless or without a car as doing so would not allow you to do the following). Also, not all of your debt will go away. There may be some amounts that you are still required to pay, and once you file for bankruptcy, it is very unlikely you will be able to stop it from going through.

When it comes to Chapter 13 bankruptcy, you will at least get to keep all your property instead of having it liquidated to pay your debts. Creditors cannot harass you or take your money either through your wages or within your accounts. The time you are given to repay your debts is also much, much longer than compared to Chapter 7.

Your debts must be under a specific amount of money and you will be the one to pay them back, something that can take a great deal of time to do depending upon your repayment plan, how much you earn, and how much you owe. If your case closes and you still owe debts, you still have to pay them back. This can be very damaging to your funds in the future, as well as your credit history.

If you still have no other choice and must file for bankruptcy, it will be up to you which option is best for your particular situation. Look into how much you owe and whether or not you want to try paying it back without giving up any of your property. If you owe an exorbitant amount of money, then you may have little choice and will have to file for Chapter 7.

Some people prefer to have a lawyer present during their bankruptcy case. You can file for bankruptcy on your own as well as represent yourself; a lawyer is not mandatory. There is a lot of information to go through and it may be easier to have a lawyer present, especially when deciding what you need to list under your assets and what it is not necessary to list. You do not want to accidentally leave something out and get in trouble for fraud when you did not mean to. You may also want a lawyer should your case not go smoothly – sometimes creditors can object to the discharge of certain debts and a lawyer can challenge them. However, you must choose wisely in order to get a good lawyer and not just someone looking to make easy money on a bankruptcy case. You are already bankrupt – you cannot afford to spend money on someone who is not going to take your case seriously.

Even though you are already in debt, filing for bankruptcy will cost you money. There will always be court costs and you must pay a filing fee when you initially hand in your petition. You can pay in installments if the court authorizes you to do so. The cost of filing for bankruptcy may be surprising: $200 when filing for Chapter 7 bankruptcy and $185 when filing for Chapter 13 bankruptcy. If you are not filing as an individual but instead jointly as a couple, the fees can jump to $500-$1,500. If you want a lawyer, you will have to pay them in order to help you. A lawyer’s fees will range depending upon their practice. Some charge a flat rate while others work hourly. If a trustee is appointed to your case, there are fees associated with their involvement. This is unavoidable as a trustee will always be appointed to oversee a Chapter 13 bankruptcy case. The judge will usually be the one to set up the trustee fees.

You can file for Chapter 7 bankruptcy once every 6 years, and though you can file for Chapter 13 bankruptcy whenever you want, you will likely be too busy with your first filing, which may not end until 5 years later. Even so, filing more than once can damage your credit history for an extremely long time, and it is very undesirable to file even once. Save more, spend less, and in general, be responsible with your finances so you do not have to worry about filing for bankruptcy at all.

After filing for bankruptcy, you may find it difficult to obtain credit again. Though there are credit cards for people with poor credit, your best bet is to obtain a secured credit card for bad credit. It is possible for you to reestablish your credit, but it will take some time and a lot of responsibility on your part to make your credit work this time around. Bankruptcy cases will remain on your credit history for as long as 10 years, so be very careful. If you make efforts during your case to change your financial ways and pay off your creditors, other creditors may see this and be willing to take a chance on you the second time you look for credit. For those who file and then do nothing, there is a very unlikely chance they will obtain any sort of credit.

Bankruptcy is draining, both financially and emotionally. Keep track of all your finances and avoid any sort of debt whenever possible. Bankruptcy may be a common occurrence, but that does not mean you have to join the ranks of those who have already filed.