How Can a Bankruptcy Help with Credit Card Debt?

When you are struggling in debt, you face many concerns. One of the major worries is your credit card debt. As you fall behind, you may find yourself hit with fees and climbing interest. This can make you feel like you’ll never be able to pay off what you owe.

When the situation becomes insurmountable, bankruptcy may be the only option you have left. The good news is this: most forms of bankruptcy can remove or reduce your credit card debt.

Here is a broad overview of how common bankruptcy works and how it can affect your credit card debt.

Secured Debt vs. Unsecured Debt

Most forms of bankruptcy depend on the kind of debt you’ve accumulated. For most people, personal debt breaks down into two different categories: secured and unsecured.

To qualify for a secured loan, you must put up collateral. This means you are borrowing on the value of a physical item. For instance, many people take out a second mortgage on their home when they need more money. The loaner isn’t simply giving you money to borrow and pay back later. You are borrowing against the value of your home, and if you fail to make payments, your home could be repossessed.

An unsecured loan is simply money that you can borrow with the promise to pay the lender back. Most credit card debt qualifies as an unsecured loan. You have a certain amount of money you may borrow off the card, and you must pay that money back with interest.

Using either Chapter 7 or Chapter 13 bankruptcy, you may be able to have your unsecured credit card debt removed.

Chapter 7 Bankruptcy and Credit Card Debt

Chapter 7 is a “start over” bankruptcy. It wipes most of your debt clean, including unsecured debt. This means that Chapter 7 can remove your credit card debt.

Chapter 7 does, however, come with consequences. If your debt is large, you could be forced to turn over your physical property. This means you could lose your car, home, and more.

Most people with a lower amount of debt can work within Chapter 7’s limits to keep necessary property. They may not be forced to lose the house or the car. Doing so requires intricate knowledge of the law and good negotiation skills. Make sure to work closely with your attorney to ensure that you can keep the property you need for day-to-day living.

Chapter 13 Bankruptcy and Credit Card Debt

Chapter 13 is a “payback” form of bankruptcy. Working with the court, you create a plan to pay your creditors back. Your plan should take around three years to complete. This plan can lower monthly payments and give you a chance to get caught up.

Because its goal is paying back your creditors, Chapter 13 allows you to keep your property.

Credit card debt could be removed or reduced in Chapter 13 bankruptcy. It all depends on the deal you can negotiate. Since payback is the goal, the credit card companies may demand their money. They may, however, reduce interests, principals, or monthly payments to help. In some cases, Chapter 13 could completely wipe all your unsecured debt, including credit card debt.

Allow a skilled attorney to help you through a Chapter 13 bankruptcy. They may be able to free you of your credit card debt and help you rebuild your finances.

Our firm is ready to help with your bankruptcy. Call us at (805) 633-4999 today for a free consultation. You may also contact us online.

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