Can You File Bankruptcy On Credit Cards Only?
Filing for bankruptcy is not something anyone wants to do, but sometimes it has to be done. Yet, like many of the things in our lives, how to deal with bankruptcy, and the surrounding rules just are not taught to us when we are in school.
That is why you are here, right?
One of the most common and deep dark holes of debt comes from credit cards, but can you file bankruptcy from credit cards, and credit cards alone? Let’s look into it and find out.
What Is Bankruptcy?
Before we start, let’s define what bankruptcy actually means.
Bankruptcy is a legal proceeding which involves a person or a business that is simply unable to repay outstanding debts. Bankruptcy begins with a petition filed by the debtor, which is most common, or in some cases on behalf of a creditor, which is less common.
All the debtors assets will be measured, and then these assets will be used to repay a portion of the outstanding debt.
So, now we understand the basics of what bankruptcy is, let’s see if credit card debt can be handled this way.
Can You File Bankruptcy For Credit Card Debt?
Credit card debt is a form of revolving debt, it is revolving credit which means that it is done in a way that you take out money, repay it, take out, repay, take out, repay. This, of course, does keep you in debt. However, for some spendthrifts, it is easy to stay in debt and really dig a deep hole.
So, it is understandable that eventually you may end up needing to do something as extravagant as file bankruptcy.
Theoretically, you can indeed file bankruptcy for credit card debt, however, remember that with bankruptcy, it does come with a downfall- losing assets.
How It Begins- Falling Behind On Payments
So, how does this all begin? Well, it all started by skipping just one monthly payment on your credit cards, then this ends up in finding a late fee slapped on your bill the next month. Then you end up skipping another payment, two consecutive months.
If this happens, then the Credit Card Act 2009 permits the company who issued your credit card to raise the interest rate. Of course, the interest rate can also be raised if your credit score goes down, you own the card for more than a year, the prime rate interest increases, or the promotional introductory period ends.
The amount that the interest rate will increase can vary, but if you are missing payments, then you could see that rate jump from 17.8% (the average) to 30%. Actually, it could go higher, as there is no law that prevents that.
Then as the interest rate jumps, and late payment penalties and over-the-limit charges accrue, your debt will begin to soar, and if you stop making even the most minimum payments then the debt collection agencies will come knocking.
Debt collectors are aggressive in pursuing credit card debt, and their lawyers can sue you in court and obtain judgements that can include garnishing wages and placing liens on your property, too.
If you file for bankruptcy, this can stop the lawsuits and collection agencies. It prevents creditors from starting or continuing any action against you to collect the debt, which is one of the positives of filing for bankruptcy.
Can You Declare Bankruptcy On Credit Cards Only?
So, is it possible to declare bankruptcy based on credit card debt alone? Well, while credit card debt is a major reason that people end up filing bankruptcy, you cannot file for bankruptcy on credit card debt alone, as the law requires that all of your debts be listed in the bankruptcy documents.
However, as bankruptcy can eliminate credit card debt and other unsecured debts, filing will often put you in a better financial position which allows you to keep your home.
This is a major concern for most people who file for bankruptcy, and there are several ways in which bankruptcy can allow you to keep your house while you discharge unsecured debt, such as from credit cards.
You can keep your home if you meet the requirements of the bankruptcy chapter you choose.
That being said, if you have reached the point where your credit card and other debts have become overwhelming, filing bankruptcy can be your best option. It is a legal way to have many debts forgiven and can eliminate credit card and other unsecured debts, and might even allow you to keep your home.
Chapter 7/ Chapter 13 Bankruptcy
Most consumer bankruptcy debts are chapter 7 or 13. Once a bankruptcy is filed, an order from the court will prevent creditors from trying to collect during the case, which will then go into effect.
This will stop foreclosure on your home, lawsuits, garnishments, and harassing collection calls. This will be in place until the case is complete, it will give you breathing room, and if you can continue to make mortgage payments, you won’t lose your home.
The most popular type of bankruptcy is chapter 7 which is quick and gives you a fresh start, eliminating many debts, including credit card debt and usually allowing you to keep your home.
Chapter 13 allows you to consolidate payments to repay some or all of your debt in affordable monthly payments over a three to five-year period.
What Debts Are Not Covered In Bankruptcy?
So, what debts cannot be included in bankruptcy? Well, one of them is secured debts, this can include mortgages and auto loans. If the property or car was sold to provide funds towards the bankruptcy, but it did not cover the amount owed, then the balance can be included in bankruptcy. This is the only way it will count.
Any income support, court fines, student loans, fraud, personal injury claims, and debts gained just before bankruptcy also do not count either.
Credit card debt is the most common reason people file for bankruptcy, however, it cannot be the sole reason for bankruptcy.
Are you post bankruptcy? Read this guide on getting a credit card before discharge.