Filing Bankruptcy on Credit Cards: 4 Things to Know

Filing Bankruptcy on Credit Cards: 4 Things to Know
Information in this article does not constitute legal advice, it is for informational purposes only, and may not constitute the most up-to-date information. Readers should contact their attorney for advice on any particular legal matter.

Do you have credit card debt and are you unsure if bankruptcy can help you eliminate it? Well, you're not alone. In this article, we'll explain how bankruptcy discharge works for credit cards and provide you with some alternate options to consider.

Firstly, let's discuss bankruptcy discharge. When you file for bankruptcy, your debts may be discharged, meaning you are no longer legally obligated to pay them. However, not all debts can be discharged. Credit card debt is generally dischargeable, but there are some exceptions. For example, if you made luxury purchases or cash advances shortly before filing for bankruptcy, those debts may not be discharged.

Now, let's talk about some alternate options to consider before filing for bankruptcy. You could try negotiating with your credit card company to lower your interest rate or create a payment plan that works for you. You could also consider credit counseling, which can help you create a budget and manage your debt. Debt consolidation is another option, which involves combining your debts into one loan with a lower interest rate.

It's important to note that bankruptcy should be a last resort. While it can provide relief from debt, it can also have long-lasting consequences on your credit score and financial future. It's always best to explore all of your options and consult with a financial professional before making any decisions.

Can You File Bankruptcy On Credit Cards?

The straightforward answer is that you can indeed file for bankruptcy on your credit cards. But, it's not as simple as it may seem. First, you need to assess whether you meet the criteria to file for bankruptcy, and which type of bankruptcy you are eligible for. Additionally, it's important to consider whether filing for bankruptcy is the best course of action for your financial situation.

While filing for bankruptcy can help alleviate debt and give you a fresh start, it can also have negative consequences such as damaging your credit score and potentially losing assets. It's crucial to weigh the pros and cons and seek professional advice before making any decisions.

Do you qualify for bankruptcy and what are alternatives?

Are you struggling with credit card debt and considering bankruptcy discharge? It's important to know if you qualify and what the costs may be. Luckily, there's a free bankruptcy and alternatives calculator that can help you estimate personalized to your finances and zip code.

But bankruptcy discharge isn't the only option for eliminating credit card debt. In fact, some people may benefit more from a non-bankruptcy alternative. Let's take a closer look at each of these options.

Filing Bankruptcy on Credit Cards

If you're struggling with credit card debt, filing for bankruptcy could be a way to get rid of it. Most credit card debt is considered unsecured, meaning there's no collateral to secure the debt. This means that if a creditor wants to collect on credit card debt, they would need to file a debt collection lawsuit and obtain a monetary judgment against you. They may also petition the court for a wage garnishment order or levy, but not all states permit wage garnishments. Additionally, most states have exemptions that protect certain assets from being used to repay judgments. Filing for Chapter 7 or Chapter 13 bankruptcy should get rid of credit card debt under most circumstances. However, if credit card debt is the only reason you're considering bankruptcy, it may be worth exploring non-bankruptcy alternatives first. 

It's important to note that if credit card debt is the only debt you owe and your state doesn't allow wage garnishment, filing for Chapter 7 or Chapter 13 bankruptcy might not be the best option for you, especially if the debt is small and the creditor won't be able to enforce a judgment. Before making any decisions, it's wise to discuss your situation with a bankruptcy lawyer. Most offer free consultations, and you can get several legal opinions to help you make the best decision for your unique situation. If you have other debts, high credit card debt, your state permits wage garnishments, or you have substantial assets, filing for bankruptcy might be the best way to wipe out debts and protect your property.

Are Credit Cards Always Dischargeable in Bankruptcy Court?

Bankruptcy can be a helpful way to eliminate debt, but not all credit card debt can be discharged in bankruptcy. If you used your credit card to pay off non-dischargeable debts, such as tax debts, alimony, child support, or other similar debts, you cannot discharge that amount of credit card debt. This means you cannot transfer non-dischargeable debts to a credit card to get rid of them by filing bankruptcy.

Another thing to keep in mind is that recent charges to credit cards are not eligible for bankruptcy discharge. If you made charges of $725 or more on a single credit card for luxury items or services within 90 days before filing for bankruptcy, those charges are presumed fraudulent. Luxury items and services are things that are not necessary for the support of the debtor or their dependents.

If the credit card company files a lawsuit, the debt may not be dischargeable, and the debtor would need to prove they did not commit fraud to get rid of the credit card debt. Cash advances of $1,000 or more during 70 days before filing bankruptcy are also presumed fraudulent. If the credit card company files a lawsuit, the debtor could still owe that money even though they filed for bankruptcy relief. It is generally best to stop using all credit cards as soon as you decide to file for bankruptcy relief. If you have used credit cards significantly within the past three months, it's advisable to talk to a bankruptcy lawyer about the timing of your bankruptcy filing.

Debt Consolidation and Debt Settlement to Pay Off Credit Cards

Are you struggling with credit card debt and considering debt consolidation or debt settlement? These options have benefits and drawbacks to consider.

One disadvantage of debt consolidation is that it often involves using your home equity to repay credit card debts. This turns unsecured debts into secured debts and puts your home at risk if you can't make the payments. In contrast, a bankruptcy case usually protects your home equity from being used to repay unsecured debts.

Debt settlement, on the other hand, requires lump sum payments to settle the debt, which many people pay using their retirement savings or debt consolidation loan proceeds. This can unnecessarily jeopardize your retirement savings, which are protected in bankruptcy. Additionally, the amount written off by credit card companies during debt settlement is considered income by the IRS, which could result in tax debt for that year.

Before making any decisions, it's important to educate yourself. Check out our Ultimate Guide to Credit Card Consolidation and Debt Settlement Guide for more information.

We've developed a unique method for paying off debt that combines the best elements of other methods. Our Savvy Debt Payoff Method uses our Savvy Debt Payoff App to help you budget and manage your finances and debts, enabling you to pay off credit cards without resorting to bankruptcy.

Bankruptcy Calculator to help compare your options

If you're struggling with student loans, medical bills, or credit card debt, bankruptcy might be on your mind. But before you make any decisions, it's important to explore all your options. There are several debt relief options available, like Chapter 7 bankruptcy, Chapter 13 bankruptcy, debt settlement, debt management, and debt payoff planning. Each option has different costs, benefits, and drawbacks, so it's essential to weigh them carefully. That's where our calculator comes in handy. It provides you with:

  1. An estimate of the all-in cost for each debt relief option, including Chapter 7, Chapter 13, Debt Settlement, Debt Management, and Debt Payoff Planning.
  2. A breakdown of what factors contribute to each cost.
  3. Pros and cons for each debt relief option.
  4. Information about the debt relief options near you.

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