Monday, August 8, 2022

Should You File Bankruptcy For Credit Card Debt

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Should I Declare Bankruptcy Or Walk Away From My Debt

I’m $70,000 In Credit Card Debt, File Bankruptcy?

Defaulting on a loan and filing for bankruptcy are not opposite choices. In fact, Fleischman recommends defaulting on a loan before filing for bankruptcy. If you havent defaulted, it might indicate that you havent given yourself enough time to allow your financial situation to improve.

If you default, filing for bankruptcy can protect your assets from being seized by creditors. It can also protect you from having future wages or an inheritance garnished. Bankruptcy is useful not only for protecting what you have but also for protecting your future, Fleischman says.

When Should You Consider Filing Bankruptcy

Generally speaking, a bankruptcy filing is used as a last resort. It is meant to help people and businesses with debt they canât afford to pay, and for whom the hardship is expected to continue for an extended period of time. Although it is usually a good idea to first consider bankruptcy alternatives, there should be no shame in filing if you choose to go this route. Excessive debt plagues millions, and the current economic crisis is likely to increase these numbers exponentially.

To make the most informed decision possible, itâs in your best interest to consider multiple debt relief solutions before determining which option is right for you. Some alternatives to bankruptcy include:

  • Debt consolidation

  • Debt management

  • Debt settlement

Each of these alternatives to bankruptcy is discussed in great detail later in this article. But a reduction in overall debt may still be more than you can afford to pay. In this case, bankruptcy, which involves the liquidation or reorganization and discharge of debts, might be the only viable solution. Filing bankruptcy will negatively impact your credit score and remain on your credit report for up to 10 years, but for many people, it is the most effective way to wipe the slate clean and begin rebuilding a solid financial future. But which type of bankruptcy should you file?

Wipe Out Credit Card Debt And Most Other Nonpriority Unsecured Debts

Bankruptcy is very good at wiping out unsecured , medical bills, overdue utility payments, personal loans, gym contracts. In fact, it can wipe out most nonpriority unsecured debts other than school loans.

The debt is unsecured if you didn’t promise to give back the purchased property if you didn’t pay the bill. By contrast, if you have a secured credit card, you’ll have to give the purchased item back. Jewelry, electronics, computers, furniture, and large appliances are often secured debts. You can find out by reading the receipt or credit contract.

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Disadvantages To Debt Settlement:

  • There is no guarantee creditors will negotiate with you.
  • Stopping payments to convince creditors you are serious about not paying could result in your accounts going into collection and/or legal actions aimed at garnishing your wages, further damaging your credit as your debt increases.
  • When you stop payments so you can save for a lump-sum offer, late-fee penalties and accrued interest will increase the size of your debt.
  • If you settle a debt, state and federal tax collection will treat the forgiven amount as income and require you to pay taxes on it.
  • Debt settlement companies often charge expensive fees, and not all creditors are willing to work with the one you select.
  • Debt settlement will damage your credit score and your ability to obtain credit in the future.

Will Bankruptcy Benefit You

When To File For Bankruptcy With Credit Card Debt ...

With so many factors involved in the decision-making process, a Yes or No answer isnt possible, but here is a good guideline to use in making a final decision.

If you cant find a way to get out of debt in the next five years and have diligently researched solutions then yes, bankruptcy can benefit you.

But weigh the pros and cons and remember one other thing: You cant go to jail just because you owe someone money.

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What Happens When You Get Behind On Your Credit Card Payments

If you fall behind on your credit card payments, several things may happen. The credit card company may raise your interest rate, which means less of your payment each month applies to the account balance. They can also charge late fees and other fees, like over-the-balance fees which increase the amount you owe. The company may also turn your account over to a debt collector. Debt collectors can be extremely persistent in their pursuit of the debt, including calling you at work and harassing you at home. is another common reason people file Chapter 7 bankruptcy cases.

Contact A Bankruptcy Law Firm In Tampa

At Florida Law Advisers, we understand how stressful credit card debt can be. That is why we work so hard to make the case as easy as possible for our clients. We will help ensure your rights are protected, keep you well-informed every step of the way, and help you receive the utmost protection bankruptcy can offer. Regardless, if you need help with Chapter 13, Chapter 7, or other debt relief our professional legal team will provide you with the competent legal advice you can trust. To schedule a free consultation with a bankruptcy attorney in Tampa call us at 800 990 7763.

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Signs That Your Credit Cards Are Pointing You Towards Bankruptcy:

  • Your credit cards are maxed out. If your credit cards are charged to their limit, then it is a clear sign that you may be heading towards bankruptcy. Maxed out credit cards are clear indicators that you have been relying heavily on debt and that you are unable or unwilling to pay off the balance in a timely manner.
  • You miss payments or pay late. Late and missed credit card payments are another sign that you may be heading towards bankruptcy. The inability to pay your credit card bills and pay them on time is a sign that you are financially stressed and may need bankruptcy relief.
  • You refuse to open your credit card bills. If you avoid reviewing your credit card bills on a monthly basis then it is a definite sign that something is amiss and that you could soon be looking at a bankruptcy filing.
  • You use cash advances from one credit card to pay another. Robbing Peter to pay Paul is another very clear sign that you are probably on the road to bankruptcy. Remember, credit cards are not cash they are debt instruments which must be repaid with interest. Using one credit card to pay another is a fools game that only ends with more impossible to repay debt.
  • You consider applying for new credit cards so that you can better juggle the debt you have on your existing credit cards. When you get the feeling that you need more debt just to manage the debt you already have, it is a sure sign that you may need to file bankruptcy soon.
  • How The Credit Card Company Challenges The Dischargeability Of Your Debt

    Should I Declare Bankruptcy Over $3,500?

    When you file bankruptcy, your credit card company will look at your transaction history to see if you made any large purchases before you filed. If it finds evidence of fraudulent activity, it can file a lawsuit against you in your bankruptcy, called an adversary proceeding asking the court to make that debt nondischargeable.

    If you don’t respond to the lawsuit, the credit card company will obtain a default judgment against you, and the debt will not be discharged. If you do respond, you will likely have to spend thousands in legal fees defending it, and despite paying all those legal fees, you might still lose and have to pay back the credit card debt as well.

    Because of the high cost of litigation, most people who are faced with an adversary proceeding for fraud negotiate to repay the debt, sometimes for a lesser amount.

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    How Credit Card Debt Is Discharged In Bankruptcy

    Most bankruptcy filers can get rid of, or discharge, credit card debt in bankruptcy. In Chapter 13 bankruptcy, you pay off a percentage of your credit card debt through your repayment plan. The balance is wiped out at the end of your repayment plan. In Chapter 7 bankruptcy, your credit card debt is wiped out entirely without a repayment plan.

    Credit card debt is generally dischargeable however, if the credit card company can prove to the court that you used your credit cards fraudulently, the court can order that the debt not be discharged, and you will have to pay it back.

    Learn more about the bankruptcy discharge and your debts in bankruptcy in What Happens to Your Debts in Bankruptcy.

    The Benefits Of Bankruptcy

    Getting a fresh financial start

    Being mired in debt can be exhausting. Juggling bills and dealing with calls from creditors and collectors can be a constant source of stress. Getting a fresh start by completing a bankruptcy filing will get that weight off your shoulders. You can move forward without all that debt weighing you down and holding you back from your goals.

    And while you will face some credit damage from bankruptcy discharge, it can stop the continuous damage you may be facing now. You can start rebuilding your credit, instead of continuing to face penalties from missed payments, charge-offs, and debt collections.

    Most of your obligations will be cleared

    Any unsecured debts will be cleared during bankruptcy. That means fewer bills to worry about, so its easier to balance your budget.

    There are some obligations that you wont be able to clear. Any child or spousal support payments will continue, as well as payments for other court judgments. Student loans may be cleared in some cases, but only if youve been out of school for seven years or more.

    Stopping the harassing collection attempts

    Filing for bankruptcy stops all these interactions because of the Stay of Proceedings. The minute you file, an automatic stay is issued. All collection attempts stop, so even before the final discharge of your balances, youll get relief.

    No more wage garnishment or court actions

    You could be debt-free in as few as 9 months

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    Bankruptcy And Fraudulent Credit Card Charges

    In bankruptcy, a credit card issuer may feel charges on a card are fraudulent if the debtor or card issuer ran up charges they didnt intend to pay back. Some may even lie to obtain credit in the first place.

    The court may view the following charges as fraudulent:

    • Luxury goods, services or purchases of $550 or more within 90 days before your petition was filed.
    • Cash advances made within 70 days of filing that total $825 or more.

    The credit card company may choose to challenge other transactions besides those previously mentioned. One of the most important factors includes the timing of your filing. A shopping spree that included a variety of charges right before your filed may raise a red flag. The credit card company would complete a separate process in order to prove credit card charges were fraudulent. This includes filing a complaint, showing up in court and presenting evidence. In such cases, credit card companies dont always come out victorious.

    Obtaining legal advice is a good idea when considering bankruptcy. You can discuss credit card transactions you may be concerned about upon filing. If you are in a position in which you are unable to make payments on your credit cards you should refrain from using them.

    Consider Your Alternatives To Bankruptcy

    Filing for bankruptcy and what you should know about ...

    Even now that you understand the pros and cons, you shouldnt contact a Licensed Insolvency Trustee just yet. Before you do, you need to explore all the bankruptcy alternatives. This includes:

    • Debt consolidation
    • Debt settlement
    • Consumer proposals

    Bankruptcy should really only be considered once youve exhausted any other options. If you can get out of debt without the cost, credit damage and public record of bankruptcy, then its in your best interest to do so.Explore bankruptcy alternatives

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    Which Should I Pay Off First: Payday Loans Vs Credit Cards

    Filing bankruptcy for credit card debt or other types of debt eliminates the need to prioritize one debt over another. However, if you arent ready for bankruptcy, its important to understand which debts to deal with first.

    If youre like most people considering bankruptcy, you have a variety of different kinds of debt. Although medical debt or credit card debt alone is enough to drive someone to bankruptcy, the average person has a combination of different debts.

    If two of the types of debt youre dealing with include credit cards and installment loans, how do you know which to make a priority? Which should you try to pay off first?

    The answer to this question is simple: Its credit card debt.

    Installment loans include things like student loans, mortgages, and car loans. These loans tend to have lower interest rates and in the case of student loans, do not cause as dramatic a shift in your credit score if you fall behind.

    However, its important to note that if you are facing the threat of foreclosure on a mortgage loan or repossession on a car loan, youll want to prioritize those over all other debts. You should only make credit card debt the main priority when youre able to meet your monthly payment obligations for your other loans and want to put extra money toward paying down debt faster.

    Don’t Stop Paying Credit Cards Before Qualifying For Bankruptcy

    In most cases, if you’re qualified to file for bankruptcy, making credit card payments is like throwing money down the drain. But if you’re still undecided or might not file your case for a long time, stopping your credit card payments can cause unnecessary damage.

    Also, before you stop paying your credit card debt, you’ll want to be sure that you qualify for bankruptcy. Once you stop, fees add up quickly, and if you don’t file, it might be hard to bring your accounts current. So you’ll want to confirm that you pass the Chapter 7 means testthe test required to qualify for Chapter 7. Otherwise, you might have to file for Chapter 13and qualifying for Chapter 13 isn’t a given, either. Funding a Chapter 13 repayment plan can be too costly for many filers.

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    Rewards Credit Cards Create More Debt

    Should I File Bankruptcy or Pay Off Debt?

    Post-bankruptcy debtors who sign up for credit cards which offer rewards such as cash back, may be at a higher risk for accumulating large amounts of debt. In a recent study which analyzed the spending habits of 12,000 credit card consumers, it was found that debtors who have rewards credit cards are likely to spend more and accrue more debt.

    The initiation of a 1% cash rewards program yielded, on average, a $25 reward each month-and an increase in spending by $68 a month and in credit-card debt of $115 a month, the economists say in a paper to be presented at the American Economic Association meetings next week. ..In many cases, rewards entice people whose cards were dormant to start spending, the study found. About 11% of those who hadnt use their credit cards in the previous three months made purchases of at least $50 in the first month of the program.

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    Special Circumstances That May Allow For Credit

    Once you have filed for bankruptcy, you are not typically allowed to get approved for credit unless your situation involves a special circumstance. Several special circumstances in which the court may allow you to obtain new credit during bankruptcy include:

    • Medical Expenses Although you may not consider medical expenses as an incurring debt, they are a form of debt. When you visit a medical professional for services and receive a bill at a later time, the Bankruptcy Code considers this new credit.
    • A New Vehicle Its common for individuals to purchase a new vehicle during their Chapter 13 bankruptcies. While getting a loan from a conventional lender can be tough, lenders who cater to individuals making Chapter 13 payments do exist. If you get approved by one of these lenders, understand that you will be paying a high interest rate.
    • You may be able to get a new credit card during Chapter 13. If youd like to rebuild your credit, opening a secured credit card can help.

    Although you typically need permission to incur additional debts during bankruptcy, small debts that are outlined by your Chapter 13 trustee, as well as any new tax liabilities that you incur, do not require the courts approval.

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