Should I File For Bankruptcy For My Credit Card Debt?

If you’re struggling with high credit card debt, you may be wondering if declaring bankruptcy is the right choice. This is a common dilemma many Americans face. In this article, we’ll walk through the key things to think about when weighing bankruptcy for credit card debt.

How Much Debt Do You Have?

First, take a close look at your total credit card debt amount. Are you dealing with a few thousand dollars spread across a couple cards? Or do you have $20,000+ in credit card debt across multiple cards and accounts? The total amount will impact whether bankruptcy makes sense.

Those with smaller debts may be better off trying options like debt management plans or debt consolidation loans first. But if you have very high credit card balances across multiple accounts, bankruptcy may be a more viable option.

Can You Make the Minimum Payments?

Next, look at whether you’re able to keep up with minimum monthly payments. If you’re struggling to make even the minimums month-to-month, bankruptcy may offer relief. But if you can handle the minimums, you may want to avoid bankruptcy.

Missing payments can trash your credit score and lead to collections calls. Bankruptcy stops collections activity and wipes out the debts entirely. But it also damages your credit for years. So weigh the options.

How Much Disposable Income Do You Have?

Bankruptcy comes in two main forms – Chapter 7 and Chapter 13. Chapter 7 wipes out eligible debts, while Chapter 13 involves a 3-5 year repayment plan. To qualify for Chapter 7, you must fall under state median income limits.

If you have high disposable income, you may be pushed into a Chapter 13 plan. Look closely at your income and expenses. If you have $1,000+ left over each month, Chapter 13 may be your only option.

What is Your Credit Score?

Bankruptcy can drop credit scores by 100 points or more. So if you have very good credit currently, it can undo years of careful score building.

But if your score is already poor, bankruptcy may not make things much worse. Run your credit reports and check your scores before deciding.

Do You Have Assets?

In Chapter 7 bankruptcy, eligible debts are wiped out in exchange for liquidating some assets. Things like second cars, jewelry, collectibles, etc may be sold off and the proceeds paid to creditors.

If you have significant assets you want to keep, a Chapter 13 repayment plan may be better. The court won’t liquidate assets in a Chapter 13 case.

How Close Are You to Retirement?

Bankruptcy stays on your credit report for 7-10 years. This could impact your ability to get credit cards, car loans, or mortgages during that time. If retirement is on the horizon, filing bankruptcy now could cause issues.

Weigh if trying debt management or consolidation first makes more sense if you’ll need credit soon.

Do You Have Co-Signers?

When you co-sign for a loan or credit card, you take equal responsibility for repayment. Filing bankruptcy does not remove co-signed debts.

Your co-signers would still be on the hook. And it could seriously damage your relationships. Think this through before filing.

Have You Filed Before?

You generally cannot file for Chapter 7 bankruptcy again for 8 years after a previous filing. And you must wait at least 2 years before filing Chapter 13 again.

If you’ve filed bankruptcy recently, your options may be limited. An attorney can advise if you qualify to file again.

Do You Have Non-Dischargeable Debts?

Most credit card debt is dischargeable in bankruptcy. But other types, like student loans, alimony, and taxes, are generally not dischargeable.

If you used credit cards to pay non-dischargeable debts, the credit card companies can challenge the discharge. An attorney can help navigate this.

How Will It Impact Your Future Goals?

Bankruptcy makes getting credit much harder for 7-10 years. Interest rates will be higher as well. If you hope to buy a home or car soon, bankruptcy could cause issues.

Make sure you factor in future plans. An attorney can discuss timelines and options.

Do You Need Your Credit Cards?

Filing bankruptcy will lead to credit cards being closed. This can impact your ability to rent cars, book hotels, and more while traveling.

If you must keep cards open for any reason, a debt management plan may be a better fit.

Can You Commit to a Chapter 13 Plan?

Chapter 13 bankruptcy involves sticking to a debt repayment plan for 3-5 years. If you fail to make the monthly payments, your case can be dismissed.

Take an honest look at your budget. Don’t commit to a plan you can’t realistically afford long-term.

Have You Tried Debt Settlement?

Debt settlement is an alternative where credit card companies agree to settle debts for less than you owe. This also damages credit but may avoid bankruptcy.

Talk to a debt relief company to see if you could settle debts for an affordable amount first.

The Impact on Your Credit

There’s no way around it – filing bankruptcy severely damages your credit. The bankruptcy will stay on your credit reports for 7-10 years depending on the chapter.

Your credit scores could drop by 100 points or more. Interest rates will be much higher when trying to get approved for credit.

If your credit is already poor though, bankruptcy may not make it drastically worse. But be prepared for the impact.

The Costs

Filing bankruptcy has costs including attorney fees and filing fees. Chapter 7 costs around $1,500 on average, while Chapter 13 averages $3,000-$5,000.

Some attorneys offer payment plans if you can’t afford the full fees up front. But make sure you factor in the costs.

The Alternatives

Before deciding on bankruptcy, explore alternatives like debt management plans, debt consolidation loans, or debt settlement. They may provide relief without the long term credit damage.

An accredited nonprofit credit counselor can go over all of your options.

Getting Legal Advice

Ultimately, deciding if bankruptcy is right for your situation requires weighing many factors. Speaking with a bankruptcy attorney can provide the legal guidance needed to make the best choice.

Look for a local attorney with extensive experience filing bankruptcies for consumers. They can review your unique situation and advise on both Chapters 7 and 13.

Many offer free initial consultations, so you can get professional advice at no cost. It’s wise to consult an attorney before making any final decisions.

Managing Your Finances After Bankruptcy

If you do decide bankruptcy is your best path forward, be sure to take steps to manage your finances responsibly after filing. Some tips include:

• Stick to a budget each month
• Build up an emergency fund
• Avoid taking on new debt right away
• Pay bills on time going forward
• Check your credit reports regularly
• Sign up for credit monitoring
• Consider secured credit cards to start rebuilding credit

With smart financial habits, you can start to recover and rebuild your credit after bankruptcy. It takes time, but people can and do bounce back.

Just be sure to learn from past mistakes. Use budgeting tools, save diligently, keep balances low on credit cards, and maintain good financial practices. With discipline going forward, you can get back on stable ground over time.