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Credit Card Debt - Is Bankruptcy the Best Option?
If you are overwhelmed by credit card debt and considering bankruptcy, it is time to consult a bankruptcy attorney and discuss your options. Because filing bankruptcy is a major decision, it is worthwhile to find an attorney who will explain the pros and cons of all your payment options before rushing into a bankruptcy decision, which can have other repercussions.
Debt consolidation or bankruptcy?
If you first explore alternatives to bankruptcy, such as working out a debt elimination or debt consolidation plan with your creditors, you may be able to avoid filing bankruptcy. In the end, you may determine that bankruptcy is your best option, but for some people it may not be the best way to proceed.
Bankruptcy may be an option worth pursuing if you rely on credit cards to pay your monthly living expenses without knowing if you will be able to pay the bill each month, or if your credit cards are maxed out, or if you can only afford the minimum payment or even less each month.
What can happen if I just don't pay my credit card bills?
Some people may wonder what will happen if they just stop paying their credit card bills rather than filing bankruptcy. Unfortunately, this will usually only make matters worse. Although specific laws vary from state to state, credit card companies have many different options for collecting debt from making harassing phone calls to filing a lawsuit in order to be awarded a judgment for the amount owed including penalties and interest.
Once a credit card company is awarded a judgment, they have several options to collect the money, including wage garnishment (in most states), real estate liens, forcing a sale of assets, seeking a court order to set aside transfer of assets, including cash, given to family members within the last few years, and obtaining a court order to take the money out of bank accounts.
This is only a basic overview of some of the things that could happen if you just ignore credit card debt. You can avoid most of these undesirable events from happening if you hire a good attorney to assist you with your debt options including bankruptcy filing under either Chapter 7 or Chapter 13.
Will all my credit card debt be discharged if I file for bankruptcy?
Filing bankruptcy does not guarantee that all your credit card debt will be discharged. A credit card company can challenge the discharge of debt in a bankruptcy filing for reasons of fraud. Credit card debt may be non-dischargeable if it's shown that the application submitted to get the card was fraudulent or that the use of the card was fraudulent and there was no intent to repay the debt.
What factors cause a credit card company to suspect fraudulent credit card use?
There are many factors that indicate fraudulent credit card use, which may cause the credit card company to challenge credit card debt discharge under bankruptcy, including:
- submitting false information on credit card application
- newly issued credit cards
- increase in credit card usage in months before filing
- cash advances in months before filing
- exceeding credit limit
- pattern of borrowing from one credit card to make a payment on another
- purchases for luxuries or recent travel and vacations
- using credit card when unemployed or without reasonable belief of ability to repay
- using credit card after consulting with a bankruptcy attorney
- amount of time between when charges made and bankruptcy filed
If you are considering bankruptcy, it is important to be aware that certain luxury purchases and cash advances in the 2-3 months before filing bankruptcy may be considered non-dischargeable and will have to be repaid in full. Also, if you are concerned that any of your credit card debt may be challenged, you may want to wait and file so that there is more time and/or payments between the questionable usage and filing bankruptcy, contest the challenge of fraudulent use with evidence, or settle with an objecting credit card company if they file a challenge.
If a judge agrees that the credit card debt was incurred by fraud, the debt will not be discharged in bankruptcy.
Will bankruptcy affect my credit?
If you are in the situation where you have credit card bills and other debts that you cannot pay, it has already affected your credit and bankruptcy will probably not make it any worse. A record of the discharged debts and bankruptcy filing will appear on your credit report for ten years, but that does not mean you will not be able to obtain credit during that time.
Bankruptcy gives you a chance for a new beginning and you will be able to rebuild your credit. Creditors want you to borrow and knowing that you do not currently have a large amount of debt, that there is a low probability of filing bankruptcy for a second time, and that you cannot file bankruptcy again for years, you will probably receive unsolicited credit card offers in the mail to help you get back on your feet. Most people who file bankruptcy change their credit card habits and are able to reestablish a good credit history and then obtain loans for cars and homes.