Having a rolling credit card balance can be overwhelming. Whether you applied for your first credit card at 18 or waited until you were older, it is never easy to carry credit card debt with you year after year. Paying just the minimum barely puts a dent on the balance, and if an emergency comes up, it feels like you will never be able to tackle this debt.
Credit card debt is normal to, but that debt can get out of control. When it has been a problem for a long time, it is important to consider your options. This is when bankruptcy should be considered as a possible solution; however, it is important to understand how credit card debt is handled in your situation.
Bankruptcy that eliminates credit card debt
Getting rid of all or most debt is the goal for a bankruptcy filing; however, it should be understood that erasing all of you credit card debt may not be the end result. This is often dependent on the type of bankruptcy you file for.
The two common types of personal bankruptcy are Chapter 7 and Chapter 13. A chapter 7 bankruptcy is often referred to as liquidation bankruptcy, and it is straightforward in most cases. In a Chapter 7 bankruptcy, some assets are sold to satisfy creditors, while other debts are eliminated. This type of bankruptcy will eliminate credit card debt. Unlike a mortgage or a car loan, credit card debt is considered an unsecured debt.
When bankruptcy won’t clear all credit card debt
Chapter 13 bankruptcy, which is known as a reorganization bankruptcy, can help address credit card debt; however, this type of bankruptcy works differently. Instead of discharging debts on the front end, debt is paid off in a three-to-five-year repayment plan. During this period, it is likely that you will pay a portion of your credit card debt. However, the good news is that any remaining balance will be discharged after the completion of the payment plan.
It is important to note that any spending behaviors on the credit card just prior to filing for bankruptcy could impact the ability to discharge this debt. For example, if large or luxury purchases were made recently, or the card was maxed out. This could appear to be fraud or misrepresentation, resulting in this debt not being discharged.
The bankruptcy process can be overwhelming, emotional and confusing. It is important that you understand your situation, how bankruptcy could help and what to expect during and after filing. A legal professional can help guide you through the process, answering any questions that come up.