Credit Card Bankruptcy Laws – How To File Under Chapter 7 And Chapter 13

What is credit card bankruptcy?

Bankruptcy due to credit card debt is known as credit card bankruptcy. The unsecured credit card debt is an example of a consumer debt which is the result of buying a product or a service through the card. The debt keeps on accumulating and also increases because of the extra interest that adds when the consumer doesn’t pay the dues on time.

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Also, the credit company can charge a penalty when your payment gets delayed which again increases the amount to be paid back. This late payment can also result in the creditors increasing the interest rate on the same. This late payment fees and high percentage rates generally results in the consumer, who is not able to pay back his/her credit card debt, to declare a credit card bankruptcy instead.

In case a consumer declares a credit card debt bankruptcy, then the companies are forced to forgo most of the debt. To save themselves from this predicament, the credit card companies sometimes offer another deal consisting of reduced percentage rates, and removing the late payment fees; and offer a repayment schedule.

Chapter 7 bankruptcy

You can file for credit card bankruptcy under chapter 7 as under this chapter you don’t have to pay any monthly installment (your non-exempt assets are sold to retrieve money for paying your creditors). This means even if you have don’t have a regular monthly income you can still discharge the loan. However, to be eligible for this chapter, you need to prove that your average monthly income over the past six months is below the state median. This mean test is a latest addition that was made in the credit card debt bankruptcy law which makes it difficult for the mid to high income group consumers to get rid of the debts.

Earlier the majority of the people who filed for credit card bankruptcy did so under chapter 7 which resulted in cancellation of the debts. But now, the government has made it mandatory that all the individuals whose income is more than the average state income would have to file under chapter 13. To clear your debts in this chapter, all your non-exempt assets such as jewelry, or property would be sold off in order to pay off the creditors.

How to file for credit card bankruptcy

Filing for credit card bankruptcy is similar to filing for any other kind of bankruptcy:

1. First you present a petition in the court detailing your creditors, money owed to them, and a breakdown of your income and expenses.

2. As soon as the petition is filed, the credit card company can’t contact you or file a lawsuit against you.

3. A trustee is appointed who, from then, will have full control over your non-exempt assets under the credit card debt bankruptcy law.

4. A meeting with the creditors and the card company is held and the debts, in question, are reconfirmed.

5. The court gives orders and your non-exempt property is sold off and your debts are cleared.

The main advantage of filing under chapter 7 is that you don’t have to make a repayment plan and keep on providing monthly payments. But, your credit card bankruptcy would be marked on your credit report for the next 10 years which could create problems in getting a new credit card or maybe even a job.

Chapter 13 bankruptcy

As chapter 13 requires repayment of loan many people do not file under it. And now also, under the new addition in the credit card debt bankruptcy law for chapter 13, the time period to make the repayments has also been increased which will result in more interest that an individual would have to pay per month. Also, the attorney fee has also been hiked and the lawyer can also be punished now if there is any discrepancy in the filing documents.

Many Americans declare credit card bankruptcy but now with these strict laws, the filing of credit card bankruptcy has become more difficult. Also, many debtors used to file under chapter 7 which resulted in discharging of the debt because the debtor could show lack of funds. This also led to a loss for the credit card companies. That is why strict amendments were made to the credit card debt bankruptcy law and the mean test was made mandatory and debtors who failed to pass the mean test would have to file under chapter 13 and repay the loan by making monthly payments.