Does Bankruptcy Wipe Out Credit Card Debt?
If you find yourself drowning in credit card debt with no feasible way out, declaring bankruptcy might seem like a viable option to wipe the slate clean. While bankruptcy can provide relief from overwhelming debt, it’s essential to understand how it affects credit card debt specifically.
Bankruptcy can indeed wipe out credit card debt, but the process can vary depending on the type of bankruptcy you file for. There are two common types of bankruptcy individuals typically file for – Chapter 7 and Chapter 13.
1. What is Chapter 7 bankruptcy?
Chapter 7 bankruptcy, also known as liquidation bankruptcy, involves the sale of your non-exempt assets to pay off your debts. Once the process is complete, most of your unsecured debts, including credit card debt, are typically discharged.
2. What is Chapter 13 bankruptcy?
Chapter 13 bankruptcy, on the other hand, involves setting up a repayment plan to pay off your debts over a 3-5 year period. In this process, you might not necessarily have all your credit card debt wiped out, but you can still benefit from reduced payments and potential forgiveness of a portion of the outstanding balance.
3. Will all of my credit card debt be discharged in bankruptcy?
While most credit card debt can be discharged in bankruptcy, certain types of debt such as child support payments, tax debt, and student loans are typically not eligible for discharge.
4. Can I choose which debts to include in bankruptcy?
You must list all of your debts when filing for bankruptcy, including credit card debt. You cannot selectively choose which debts to include or exclude from the process.
5. How does bankruptcy affect my credit score?
Filing for bankruptcy can have a significant negative impact on your credit score, potentially causing it to drop by 100 or more points. However, it’s essential to remember that bankruptcy can provide a fresh start and an opportunity to rebuild your credit over time.
6. How long does bankruptcy stay on my credit report?
A Chapter 7 bankruptcy can stay on your credit report for up to 10 years, while a Chapter 13 bankruptcy can remain for up to 7 years. During this time, it may be challenging to obtain new credit or loans.
7. Can I apply for new credit after bankruptcy?
While it may be challenging to obtain new credit immediately after bankruptcy, some lenders offer credit cards specifically designed for individuals in the process of rebuilding their credit. Secured credit cards or credit builder loans can be good options for post-bankruptcy individuals.
8. Will I lose all my assets in bankruptcy?
In Chapter 7 bankruptcy, non-exempt assets may be sold to pay off your creditors. However, certain assets such as your primary residence, retirement accounts, and personal belongings are often protected under bankruptcy laws.
9. Can I file for bankruptcy to avoid paying off credit card debt?
Bankruptcy is not a decision to be taken lightly and should only be considered as a last resort when facing overwhelming debt. Filing for bankruptcy solely to avoid paying off credit card debt is not advisable and can have long-term consequences.
10. How can I avoid bankruptcy and manage credit card debt?
If you’re struggling with credit card debt, there are alternatives to bankruptcy that you can explore such as debt consolidation, negotiation with creditors, or seeking assistance from credit counseling services.
11. Will my credit card debt be automatically discharged in bankruptcy?
Upon filing for bankruptcy, your credit card debt will be included in the process. However, the discharge of debt is subject to approval by the bankruptcy court, and certain debts may not be eligible for discharge.
12. Can creditors still pursue me for debt after bankruptcy?
Once your debts are discharged in bankruptcy, creditors are legally prohibited from attempting to collect on those debts. If you continue to receive collection calls or notices after bankruptcy, you should consult with your bankruptcy attorney for assistance.
In conclusion, while bankruptcy can provide relief from overwhelming credit card debt, it’s crucial to weigh the pros and cons of such a decision carefully. Consulting with a bankruptcy attorney or financial advisor can help you understand your options and make an informed choice based on your individual circumstances.