What Happens to Credit Cards in Bankruptcy?

What Happens to Credit Cards in Bankruptcy?

When filing for bankruptcy, many people are concerned about what will happen to their credit cards. Will they be able to keep them? Will the credit card debt be discharged? In this article, we will answer these questions and provide some tips formanaging credit card debtduring and after bankruptcy.

Credit Cards in Chapter 7 Bankruptcy

Chapter 7 bankruptcy is also known as a "liquidation" bankruptcy because the debtor's non-exempt assets are sold to pay off creditors. In most cases, credit card debt is considered unsecured debt and is therefore dischargeable in Chapter 7 bankruptcy. This means that the debtor's credit card debt will be wiped out, and they will no longer be responsible for paying it back.

However, if the debtor wants to keep a credit card, they will need to reaffirm the debt. This means that they will sign a new agreement with the credit card company stating that they will continue to be responsible for paying back the debt even after the bankruptcy is over. It is important to note that reaffirming a debt is not always the best option, as it can put the debtor at risk of being sued if they cannot make the payments.

Credit Cards in Chapter 13 Bankruptcy

Chapter 13 bankruptcy is a "reorganization" bankruptcy in which the debtor creates a repayment plan to pay off their debts over a period of three to five years. During this time, the debtor is not allowed to take on any new debt without the approval of the bankruptcy court.

In a Chapter 13 bankruptcy, credit card debt is also considered unsecured debt and is included in the repayment plan. The debtor will usually pay back a portion of their credit card debt, and the remaining balance will be discharged at the end of the repayment period.

Managing Credit Card Debt During and After Bankruptcy

If you are considering filing for bankruptcy or have already filed, there are some steps you can take to manage your credit card debt:

1. Stop using your credit cards. Continuing to use your credit cards will only add to your debt and make it harder to pay back.

2. Create a budget. Make a list of all your expenses and income and create a budget that allows you to pay back your debts while still covering your basic needs.

3. Consider credit counseling. A credit counseling agency can help you create a debt management plan and negotiate with your creditors to lower your interest rates and monthly payments.

4. Build your credit. After bankruptcy, it is important to start rebuilding your credit. One way to do this is by getting a secured credit card, which requires a deposit and can help you establish a positive payment history.

Credit Card Fees and Risks

When applying for a credit card, it is important to read the fine print and understand any fees and risks associated with the card. Some common fees include annual fees, late fees, and balance transfer fees. Additionally, credit card companies can increase your interest rate at any time, so it is important to make your payments on time and keep your balance low to avoid paying extra in interest.

Conclusion

In summary, credit card debt is typically dischargeable in both Chapter 7 and Chapter 13 bankruptcy. However, if you want to keep a credit card, you will need to reaffirm the debt. It is important to manage your credit card debt during and after bankruptcy by creating a budget, considering credit counseling, and building your credit. Finally, be aware of any fees and risks associated with your credit card to avoid paying extra in interest and fees.