bankruptcy credit card: What You Need to Know

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Should I File Bankruptcy? Credit Card Debt Has Me Overwhelmed

People have a natural tendency to distance themselves from unpleasant circumstances; like, for instance, when someone accrues overwhelming credit card debt and has to file for bankruptcy. “Credit cards aren’t that hard to manage,” you may think. “How could they let themselves run up that much debt? I would never do that.” The reality, though, is that credit card doubt can mount quickly despite our best efforts. What do you do when you are in that position? Should you file for bankruptcy?

Bankruptcy is the last resort when you are faced with credit card debt. It can either eliminate your debt (chapter 7) or reorganize it and assign you a repayment plan (chapter 13). If you meet income requirements, though, you can file for chapter 7 bankruptcy. Credit card debt will be discharged, leaving you with a fresh start (albeit with a scarred credit report). Chapter 13 gives you the ability to repay your debts or a portion of them.

But it can also severely affect your credit for the next decade. This will make it harder to obtain credit – at least with good rates – after your proceedings. It can also be quite costly, with filing fees, mandatory credit counseling, and lawyer fees. This might prove to be too much of a burden on top of your already difficult debt load.

In addition, many landlords and employers now require that you pass a credit check. Bankruptcy may affect your chances of renting certain apartments or getting jobs with certain employers. You may also find it difficult to get life insurance in excess of $150,000 with bankruptcy on your credit report.

Are there options to bankruptcy? Credit card debt may be dealt with in other ways. The key is to start in time to explore your other options. These include:

  • Budgeting your money and revamping your spending habits. You may be able to free up some cash by cutting down on extras, like eating out, extraneous driving, vacations, and more.
  • Talk with your creditors. They would rather be paid something than nothing, so they may be willing to lower your interest rate or monthly payment.
  • See if you can get a low interest low to consolidate your bills. If you own a home, you may also take out a home equity loan. Be careful, though, to manage this debt very carefully. The last thing you need is to put your home in jeopardy.
  • A better option than a debt consolidation loan or consolidating service is a debt reduction or debt settlement program. Instead of simply rolling all your debt into one large sum, debt settlement can actually reduce the amount you owe to creditors.

If at all possible, it is best to avoid bankruptcy; credit card debt can be dealt with in other ways that will not impact your credit score so harshly. If it is the last option you have left, make sure you are prepared to change your spending habits and credit card management in the future so you never have to go through that draining process again.