You may have used your credit card to pay for necessities, such as medical bills or car repairs. But what happens when your credit card debt gets to be too much, and you fall behind on your payments? Below, we discuss what you need to know about filing bankruptcy on credit cards.
What Happens If You Fall Behind on Credit Card Payments?
First, your credit card company might raise interest rates, making less of your payment every month applicable to the actual account balance. In addition, the company will more than likely charge you fees, such as late fees and over-the-balance fees. From there, the company may turn your account over to a debt collector. This will only make matters worse, since debt collectors are incredibly persistent in pursuing debt, calling you non-stop at home and work. In fact, many people end up filing for bankruptcy to simply stop the harassment from creditors.
Discharging Credit Card Debt Through Chapter 7
Discharging debt through Chapter 7 bankruptcy requires selling non-exempt property through a bankruptcy trustee. This trustee will then distribute the proceeds among your creditors.
You can effectively discharge almost any unsecured debt through Chapter 7, including credit card debt, personal loans, and medical bills. Essentially, unsecured debt isn’t backed by collateral or property, so it’s considered non-priority when it comes to paying back creditors. This simply means that this type of debt is easier to discharge compared to nondischargeable debt, such as student loans and child support.
Discharging Credit Card Debt Through Chapter 13
With Chapter 13 bankruptcy you can pay back your creditors in part or full through the use of a repayment plan. Typically, this plan lasts between three to five years, and once it ends, any remaining debt is then discharged. Most often, people usually only repay a small percentage of their overall credit card debt in Chapter 13 bankruptcy.
How much you will actually pay depends upon your disposable income and the total value of your non-exempt property. While you get to keep all of your property in Chapter 13, you are required to pay off the non-exempt portion.
Exceptions to Discharging Credit Card Debt Through Bankruptcy
In certain situations, your creditor can challenge your credit card debt discharge request. And if they are successful, you are still responsible to repay it. Those situations include the following:
- You filled out the credit card application with false information that was integral to the issuer’s decision to approve you, such as grossly inflating your income.
- Within 90 days of filing for bankruptcy, you charge over $725 to a single creditor for luxury services or goods.
- Within 70 days of your bankruptcy ruling, you take a cash advance from a singly creditor for $1,000 or more.
Can Credit Card Debt Be Considered Secured?
Yes, in very rare situations your card issuer might take some security interest in your property on the credit card agreement. In this situation, while you can still wipe out that debt, it’s now considered secured, which means the creditor is entitled to your property that secured the obligation.
Can Credit Card Companies Take Action Against Me After I File for Bankruptcy?
No, the minute that your file for bankruptcy, the court issues an “automatic stay” that prohibits creditors from taking debt collection actions against you. This bankruptcy protection means that they cannot sue you, send collection letters, or call you.