If you have fallen behind on bills and find yourself struggling with debt in Arizona, there is a good chance that at least some of what you owe is for balances due on credit cards. This type of debt is one of the trickiest because it is so easy to open an account, and it might seem even easier to let your credit card spending get beyond your financial means. One of the most harmful consequences involves how the balance and fees spiral out of control. You are paying the minimum amount, which is the maximum that you can afford. Yet, the payment only covers the interest and late fees, not denting the underlying balance.

Fortunately, most types of credit card debt can be discharged under Arizona bankruptcy laws. Through Chapter 7, you can eliminate debt if you qualify under the rules. With Chapter 13, your credit card debt is erased once you complete a payment plan.

Not living under the weight of debt is an enormous relief, but there are many other benefits of filing for bankruptcy for credit card debt that you might not realize. Your Athens, GA, bankruptcy attorney will help ensure you take advantage of all opportunities, and some background on the process is useful.

 

Overview of Chapter 7 Bankruptcy

Chapter 7 bankruptcy is known by two nicknames based on the primary components of the case:

1. Chapter 7 Discharge: If you qualify, you can eliminate all qualifying debt through Chapter 7. However, the eligibility rules are strict to include only those who need significant debt relief. You qualify if your earnings are below the state median income level for the State of Georgia. You may also be eligible under the Means Test even if your salary exceeds this threshold. With this assessment, the monthly bills you pay could result in an adjustment that enables you to file for Chapter 7.
2. Chapter 7 Liquidation: A key objective of bankruptcy is satisfying the debt to creditors when possible, so the bankruptcy trustee can sell your assets to gain cash flow. You can apply exemptions to protect certain assets, including the equity in your home and vehicles. In practice, the bankruptcy trustee may liquidate just a few items or none at all. With certain assets, the process of selling may not make much of a financial return to pay debt to creditors.

 

Chapter 13 Bankruptcy Basics

Though the process is different, the rules of Chapter 13 share some common points with Chapter 7. The end result is that you discharge qualifying, unsecured debt. Plus, there is a structure built into the Chapter 13 process that serves to pay back debt to creditors. However, your assets are NOT subject to liquidation to satisfy debt. Instead, with Chapter 13, you enter into a debt repayment plan.

As part of the case, your debts are combined and organized into a monthly payment amount that you can afford. For this reason, an important eligibility rule for Chapter 13 is that you must have a job to meet your obligations under the debt repayment plan.

Your debt repayment plan will remain in effect for 3 to 5 years, at which point your bankruptcy case ends. At this time, you will have paid some portion of the debt that you owe. The total amount that you submit under the plan will usually be far less than the total debt that was due before you filed your Chapter 13 bankruptcy petition. All remaining eligible debt is discharged.

 

Understanding Credit Card Debt in Bankruptcy

Not all types of debt are the same, and some debts you owe may not be suitable for Chapter 7, Chapter 13, or both. Fortunately, credit card debt is one type that is a good fit for bankruptcy for a few reasons:

• Credit card debt is unsecured unless you have a card in which you placed a deposit. With unsecured debt, there is no collateral for the creditor to pursue. When a debt is secured by an asset as collateral, the creditor can opt to sell the item to satisfy the balance because it owns an interest. Your home secures your mortgage, and your auto loan has the vehicle as its collateral.
• Your credit card debt is in a class of termed dischargeable, which means it is eligible to be eliminated through bankruptcy. Some types of debt cannot be wiped out because of the nature of the underlying obligation. For instance, you cannot discharge alimony, child support, or a judgment resulting from a DUI accident caused by you. Most taxes are also not able to be eliminated through Chapter 7 or Chapter 13.

Benefits of Filing for Bankruptcy for Credit Card Debt

With a framework in place about how Chapter 7 and Chapter 13 work, and some details on credit card debt, you can appreciate the advantages of filing. The benefits of bankruptcy extend beyond just the proceedings pending before the bankruptcy court.

Advantages Before Filing: You may not expect that you could gain from the bankruptcy process even before you file your petition, but there are benefits in the long run. This is because all filers must take a credit counseling course before starting the bankruptcy case. During the session, you will get a better understanding of your debt, how you got in a financial predicament, and ways to avoid future problems.

Benefits During the Bankruptcy Process: One advantage that will affect you immediately after you file is that the bankruptcy court will impose an automatic stay on all creditor activities to collect your debt. Creditors cannot communicate with or contact you, threaten a lawsuit, file a collection action, or garnish your wages. Any foreclosure action on your home must cease, though the lender could request that the automatic stay be lifted.

A Chapter 7 case may be completed within a few months, but Chapter 13 bankruptcy lasts at least the 3 to 5 years of your debt repayment plan. The advantage during the case is that you pay back a percentage of your debt during this time.

Post-Bankruptcy Benefits: The advantages you enjoy after your bankruptcy case are the most favorable for many people who file, as you get a clean slate with your financial situation. You are no longer paying for interest and late fees that balloon to extreme levels, and the stress of overwhelming debt is eased.

There are consequences for your credit rating, but there is an important point to remember. If you continue to struggle with debt instead of filing for bankruptcy, it may take several years or even decades to get control over your finances. After bankruptcy, you will eventually enjoy better interest rates with credit, though you mustn’t make poor decisions. You are likely to avoid bad judgment because you must take a second credit counseling session for additional education on managing finances.

Timeline of a Bankruptcy Case

Whether you are focusing on eliminating credit card debt, personal loans, medical debt, or lines of credit, the first step in a bankruptcy case is determining whether Chapter 7 or Chapter 13 is the right solution. The rules are complicated, and you need to develop your strategy to obtain the best benefits for filing for bankruptcy.

There are different steps for Chapter 7 and Chapter 13, but these bankruptcy cases generally proceed in a similar fashion. You can trust your Georgia bankruptcy lawyer to manage all essential tasks, which include:

• Helping you gather and organize all financial documents regarding your debt, income, and assets;
• Preparing and filing the bankruptcy petition, along with all necessary schedules;
• Assisting you in developing your Chapter 13 debt repayment plan, which you must begin paying on within 30 days after filing;
• Attending the meeting of creditors with you, in which creditors will ask questions about your petition, assets, and ability to complete the debt repayment plan for Chapter 13;
• Handling all matters involved to wrap up your case, including obtaining the final discharge order from the bankruptcy court.

Rebuilding Credit After Bankruptcy

There is no denying that the bankruptcy case on your credit report is a challenge. A Chapter 7 case will remain a part of your credit history for ten years, while Chapter 13 is included for seven years. However, this time should not be considered useless regarding your financial situation. For one, if you have a mortgage and continue to pay it throughout the bankruptcy process, this information is reported to the credit bureaus.

In addition, there are additional ways to rebuild your credit after bankruptcy. Examples include:

• You could obtain a secured credit card or line of credit, in which you deposit funds with the lender. The card can be used just like any other, and you pay the balance due monthly.
• It may be possible to obtain a line of credit at a higher interest rate, but use what you learned through credit counseling to ensure you do not overextend yourself.
• When the time comes, apply for a credit card after researching all options.

Discuss Additional Benefits with an Athens, GA, Bankruptcy Lawyer

Considering the advantages of bankruptcy and opportunities to rebuild credit, you can see that filing Chapter 7 or Chapter 13 may be a wise decision to resolve credit card debt. To learn more about the ways that bankruptcy can change your financial life for the better, please get in touch with Morgan & Morgan, Attorneys at Law, P.C. We can schedule a consultation with a Georgia bankruptcy attorney who will review your circumstances and advise you on options.

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