Every year millions of people in the U.S. find themselves unable to handle the vast amount of debt they have accumulated and claiming bankruptcy starts looking like the only way to wipe the financial slate clean and start again. Perhaps it is the right option, but first, let’s look at why people end up in this situation.
In looking at bankruptcy and credit cards, legitimate reasons such as unexpected illness or job loss do contribute, but credit cards are also highly to blame. Most people in the U.S. have at least a couple of different credit cards and tend to use them frequently for cheap nights out to the movies as well as expensive trips abroad. It is the high interest rates and penalties for missed payments that end up catching people, making them unable to get on top of what they owe. Late payment is reported to credit rating agencies, which ends up increasing interest rates and makes the task of repayment even more impossible
How Bankruptcy Can Help
If you find yourself in a situation where you are drowning in credit card debt, filing for bankruptcy under Chapter 7 could be the answer for you as this is an example of unsecured consumer debt which means that it is not tied to any collateral and is therefore can be discharged under Chapter 7. This is not to say that it is an easy process that requires no serious consideration. Some credit card companies lobbied to try to amend the US Bankruptcy Code, making it harder to have credit card debts cancelled, and this resulted in BAPCPA – the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. It raised the costs of filing for bankruptcy in order to make it a less attractive alternative to people in debt.
Even though filing a bankruptcy claim could help your current financial situation by clearing your debts, it is best to consider all you options beforehand as bankruptcy will stain your financial record for up to 10 years and make it difficult for you to rent or own property and be granted future credit. If credit card debt is your main problem, try talking to your credit card companies. If you explain the situation to them, they may be more understanding than you expect. Filing for bankruptcy generally means that credit card companies are forced to forgive all or much of you debt; therefore, it is in their best interest to work out a deal with you. This could include reducing your APRs or even removing past late fees and penalty charges.
Surprisingly, credit cards may also offer a solution. Depending on your personal financial situation, it may help to consolidate your bills onto a low-interest credit card that makes it more possible for you to pay off. This is a risky option and if you are thinking of taking this route, it would be wise to first consult a debt management specialist or bill consolidation expert before continuing. Also, make sure to fully research the low-credit cards that are out there and remember to read the fine print carefully.
If you can find no alternative solution and you opt to file under Chapter 7, whether you keep your credit cards or not is up to the credit card company. Usually they will cancel the card, but if you sign a Reaffirmation Agreement stating that you will continue paying the dischargeable debt after the bankruptcy, there may be a possibility of keeping your card(s).
Obtaining Credit Cards After Bankruptcy
After bankruptcy, it will be very difficult for you to be approved for credit and although many experts recommend avoiding credit cards for the first few years after bankruptcy, in today’s world they are often required for reservations and website purchases. So, you have a choice between unsecured and secure cards.
1. Unsecured Credit Cards- these cards are specifically designed for people with bad credit and are instantly approved with no application fees, security deposit, or employment check. These can be dangerous for those with issues of overspending and they do not help rebuild your credit scores as they do not usually report to the credit bureaus. Be careful as there are many unsecured cards which can be very tempting.
2. Secure Credit Cards- A secured credit card requires you to deposit money with the lender and your credit limit is equal to the deposit. These are a useful way of helping you recover from bankruptcy and improve your credit rating as they should report to all three credit bureaus.
Thankfully less people are going into debt because of credit cards than before but if you are one of the unlucky ones who finds themselves drowning in credit card debt, don’t worry. Filing under Chapter 7 of the Bankruptcy Code could mean that most or all of your credit card debt is erased, leaving you with a fresh start. However, it is strongly advised that you consult a qualified bankruptcy attorney before making your decision.
For more information on bankruptcy and credit cards, please feel free to browse our site. If you want to know more about filing bankruptcy, then consider taking our free bankruptcy evaluation to be connected with a reputable bankruptcy lawyer in your area.