Filing Bankruptcy on Credit Cards

Posted on August 21st, 2022 to Barbaruolo Blog

Can I File Bankruptcy on Credit Cards?

Yes, filing bankruptcy for credit card debt is possible. In fact, most bankruptcy filings include general unsecured debt, such as credit card debt. Unlike secured debt, like an auto loan that’s backed by collateral, credit card debt is usually unsecured.

How to File Bankruptcy on Credit Cards

When you file for bankruptcy, you must list all your debts, including credit card debt, on your bankruptcy schedules. As credit card debt is generally unsecured, it’s typically discharged at the end of the bankruptcy process.

Credit Cards and Chapter 7 Bankruptcy

People often file for Chapter 7 bankruptcy relief due to overwhelming credit card debt. Credit card companies may demand unmanageable monthly payments, forcing you to rely on credit cards for basic living expenses.

Making only minimum payments can lead to spiraling debt, and interest, finance charges, and late fees can accumulate quickly. Unpaid credit card payments can result in collection attempts, lawsuits, money judgments, and wage garnishments.

Discharging Credit Card Debt in Chapter 7

Filing for Chapter 7 bankruptcy triggers an automatic stay, which means your creditors must stop collection activities. This type of bankruptcy allows you to discharge your credit card debt and other unsecured debts, freeing up cash for living expenses. Once the Bankruptcy Court issues a debt discharge, those creditors can no longer collect on the debt, giving you the fresh start you need.

Credit Cards and Chapter 13 Bankruptcy

You can also include credit card debt in a Chapter 13 reorganization, which is a repayment plan designed to help you catch up on past-due secured debt obligations like mortgage payments, car payments, and property taxes. Chapter 13 reorganizations typically last between three and five years.

Upon completion, the Court will issue a discharge of debts, and any unpaid balance owed to unsecured creditors is no longer collectable.

Credit Cards After Bankruptcy

Obtaining new credit after a bankruptcy discharge is possible, although it’s unlikely you’ll be approved for a credit card while the bankruptcy is pending. Secured credit cards, which require a deposit as security for the credit line, can be a good way to help rebuild your credit after filing for bankruptcy. Look for cards with low deposit requirements and low-interest rates, and avoid falling into the minimum payment trap again.

How Long After Bankruptcy Can I Get a Credit Card?

The time it takes to get a credit card after bankruptcy depends on various factors unique to your situation and the credit issuer’s requirements. While a bankruptcy is pending, it’s unlikely you’ll be approved for a credit card. If you file for Chapter 7, the process usually takes around four to six months.

Your credit score will initially be impacted by the bankruptcy filing, but your debt-to-income ratio should improve significantly once your dischargeable debt is eliminated. After the discharge is granted, you can apply for credit anytime. Generally, it’s easier to obtain a secured credit card after bankruptcy than a regular unsecured one. To help rebuild your credit, it’s crucial to make your debt payments on time and not carry large balances on revolving debt.

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