What You Should Know About Credit Card Bankruptcy

2 Mins read

Consumers could face overwhelming debt quickly if they mismanage their accounts. All it takes is one account to get behind, and the consumer could face a domino effect that damages their credit. If they face a high debt volume that is difficult for them to manage, bankruptcy could be the answer to these financial woes.

Choosing the Right Chapter

Typically, consumers have two options with bankruptcy. They can liquidate their assets through chapter 7, or they can set up a new repayment plan through chapter 13. If the consumer has a household income that is greater than the median, they can choose either chapter. However, most states will cut off access to chapter 13 if the claimant’s income is less than the median. However, if the claimant doesn’t have enough assets to sell through chapter 7, they may need to review alternative ways to settle their debts.

How to Settle Credit Card Accounts

With bankruptcy, unsecured credit card accounts can be discharged after the claimant has fulfilled all the requirements for the claim. This could include store cards and standard consumer credit card accounts. The judge will review these accounts and their balances. If the credit card accounts are charged off or in collections, the accounts are often discharged through the bankruptcy court. With Credit card bankruptcy, consumers could get these debts settled just by managing their other debts through a chapter of bankruptcy.

What to Expect fromLiquidation?

During liquidation, the court assigns a trustee who chooses what assets are sold and manages the sale. All the proceeds are sent to the creditors after the assets are sold. The claimant will receive the exempted amount for each asset. At the end of the claim, they could become debt-free with the right plan. Typically, the claims last up to six months.

Why Are Repayment Plans Helpful?

A new repayment plan allocates a portion of the monthly payment to each creditor. The plan includes all the debts the claimant owes, and it is spread out over a period of three to five years. The court may choose to discharge some of the debts and make it easier for the claimant to settle their debts and improve their credit scores.

Restrictions to Consider

When comparing the chapters, the claimant must consider that chapter 7 doesn’t give them much control over how their assets are sold, and they don’t get to choose the assets to sell. However, they can acquire new assets after the claim starts.

With chapter 13, the claimant must use all disposable income to pay any debts that were not included in the claim. The court will monitor their income and ensure that the claimant follows these rules. They cannot get new assets or open new lines of credit while in bankruptcy.

Consumers need help once their finances get out of control. If they see sudden declines in their credit scores, it is time to settle some of their debts. Bankruptcy provides an opportunity to settle through the court with some great benefits. Consumers can learn more about bankruptcy by contacting an attorney now.