- November 3, 2024
- Kelvin Birk
- Bankruptcy
Falling behind on credit card debt can leave you feeling overwhelmed and trapped and cause a domino effect of cascading problems. First, if your credit cards are maxed out, then just making minimum payments can mean lots of money, which leaves less for day-to-day living expenses. You can also incur late fees and over-the-limit fees, which cause the total amount you owe to keep climbing. If you fall far enough behind, your debt can go into collection, and you face constant harassing phone calls from collections agencies. Finally, overdue debt can be hard on your credit score, causing it to tumble.
If you face overwhelming debt, it may be time to declare bankruptcy on credit cards. Credit card debt is unsecured debt, so it has no property held as collateral that can be seized, and it is among the easiest debt to discharge through bankruptcy. Whether you qualify for Chapter 7 or pursue Chapter 13, there is light at the end of the tunnel. You can make a fresh start. Typically credit card debt is discharged in a Chapter 7 bankruptcy, and all or a significant portion may be discharged through Chapter 13.
Understanding Different Types of Bankruptcy
There are two types of bankruptcy that you can file as an individual or couple. Chapter 7, also known as “fresh start” bankruptcy, is the most common bankruptcy. Chapter 13, also known as “wage earner” or “debt reorganization” bankruptcy, may be the right option if you earn too much to qualify for Chapter 7.
Chapter 7 Bankruptcy
Chapter 7 is the most common type of bankruptcy for consumers with unsecured debt like credit card debt. A trustee will liquidate your assets to pay creditors, and any remaining debt is usually discharged (eliminated) under Chapter 7. Missouri has an extensive list of exemptions, so many or all of your assets – such as your house and vehicles – do not have to be liquidated. Many Chapter 7 bankruptcy filings are “no assets” cases, where none of your assets have to be sold.
Chapter 7 is usually more advantageous for the filer, but there are certain income requirements, including using the “bankruptcy means test,” to qualify for Chapter 7. One calculation, which must be made before filing, is whether your income is below the state median for your household size. If you do not qualify for Chapter 7, Chapter 13 may still be an option.
Chapter 13 Bankruptcy
This is a personal reorganization of debt that spreads repayment of some debts over a 3- to 5-year period under more favorable terms that you can afford. In Chapter 13 bankruptcy, you must have an adequate and sustainable income. Some or all of your unsecured debts, like credit card debt are typically discharged, depending on the amount of your current income and debts.
One advantage of Chapter 13 is that you can keep your home, even if it is in foreclosure or you are behind on your payments. You can stop foreclosure proceedings and work out a longer mortgage repayment plan than the current mortgage holder would typically allow.
Steps to Declare Bankruptcy on Credit Cards
If you are considering declaring bankruptcy on credit cards, the first thing you should do is consult with an experienced bankruptcy lawyer who can examine your individual situation and determine whether bankruptcy or some other form of debt relief is best for you. If bankruptcy is your best option, your attorney can help you take the following steps:
- Collect Necessary Documents: Gather all financial documents, including credit card statements, tax returns, and information about your assets and liabilities.
- Take a Credit Counseling Course: Complete a mandatory credit counseling course from an approved provider within six months before filing.
- File a Petition: File your bankruptcy petition with the appropriate court in Missouri.
- Attend the Meeting of Creditors: This is a meeting, with the bankruptcy trustee and any creditors who choose to appear, where you answer questions about your financial situation.
- Receive an Automatic Stay: Once you file for bankruptcy, an automatic stay goes into effect, preventing creditors from trying to collect debts from you during the bankruptcy process.
- Get a Discharge of Debts: If successful, your eligible debts, including most credit card debts, will be discharged at the end of the bankruptcy process.
Considerations When Filing Bankruptcy for Credit Card Debt
There are both positive and negative effects of filing bankruptcy for credit cards, as well as other factors to consider. These include:
- Impact on Credit: Bankruptcy will appear on your credit report for up to ten years. However, since you will be in a better financial position to manage current bills, you can start to rebuild credit over time.
- Non-dischargeable Debts: Some debts, such as certain taxes, child support and alimony payments, and student loans, may not be discharged through bankruptcy.
- Whether to File Bankruptcy on Credit Cards Jointly: Be aware that a “joint user” and an “authorized user” are not the same thing when it comes to credit cards. Filing bankruptcy jointly simply means that you and your spouse are both filing bankruptcy – as a married couple. That way, it is likely that all your jointly held credit card debt can be discharged. Of course, you can also file bankruptcy without your spouse if that turns out to be the most financially advantageous path forward
- Getting Legal Assistance: A bankruptcy attorney can help you navigate the complexities of filing and ensure that all legal requirements are met, preventing costly mistakes.
Tips for filing bankruptcy on credit cards
Here are some important tips for filing bankruptcy on credit cards:
- Don’t make any major purchases on your credit cards in the 60-120 days before you file bankruptcy. The court frowns on any filer who runs up significant debt buying large-ticket items shortly before filing, in hopes of having this debt discharged along with all their other debt. If a judge believes you intentionally ran up debt to scam the system, the judge may reinstate this debt and you will still owe it after the bankruptcy is over.
- Be sure to list every single debt you have on your bankruptcy filing – including every credit card, with account numbers. If you forget and leave one credit card off the list, you will likely still owe this debt even after filing bankruptcy.
- Destroy all plastic credit cards after your bankruptcy is complete. You don’t want to misplace the physical cards, even if the accounts are defunct.
Get Help Obtaining a Fresh Start
The bankruptcy process is complicated and making mistakes can be costly, but you do not have to go through the process alone. The skilled and compassionate legal team at the Birk Law Firm can provide guidance and take care of all necessary legal hurdles and requirements to help achieve a satisfactory result. Attorney Kelvin Birk is a Certified Public Accountant as well as a skilled bankruptcy lawyer, with more than 30 years of experience in accounting. He knows how to help you eliminate credit card debt and get a fresh financial start while protecting as many of your assets as possible under Missouri law.
Call us today for a free consultation to discuss your individual situation and get started on the road to a brighter financial future.
FREE CONSULT CALL NOW 573-332-8585
Attorney Kelvin Birk
Kelvin Birk is a lawyer as well as a certified public accountant, with more than 30 years of experience in accounting and tax and business consulting, and more than 20 years of experience in numerous legal matters. This combined expertise allows our law firm to provide a level of service above that of other firms. Whatever your legal situation, your attorney at Birk Law Firm can counsel you as to the tax implications. We have experience in providing myriad legal representation services to residents of southeast Missouri and other areas.. [ Attorney Bio ]
