What To Know About Chapter 13 Bankruptcy And Your Credit Card Debt

Are you interested in using bankruptcy because you have a lot of credit card debt that you need to get rid of? While Chapter 7 bankruptcy will completely discharge your credit card debt, it takes a bigger hit on your credit score. That's why you may want to know more about what happens with that credit card debt with a Chapter 13 bankruptcy.

Chapter 13 Bankruptcy May Be Necessary

Be aware that Chapter 7 bankruptcy may not even be an option for you. If you do not pass means testing to qualify for Chapter 7 bankruptcy, then Chapter 13 may be your only option to deal with credit card debt. The choice of picking one form of bankruptcy over the other will be completely taken away from you.

Credit Card Debt Is Treated As The Lowest Priority Debt

All of your credit card debt is considered an unsecured debt in a bankruptcy, which makes it the lowest priority debt to be repaid in a Chapter 13 bankruptcy repayment plan. The amount of credit card debt you pay back will mainly depend on the amount of disposable income that you have. Someone filing for bankruptcy with very little disposable income may end up paying that credit card debt back for pennies on the dollar. 

Credit Card Debt Interest Doesn't Continue To Build

Once you file for bankruptcy, be aware that the amount of credit card debt that you have will essentially freeze as the final amount. The interest will not continue to build on your credit card debt during the bankruptcy process or while you are paying back the debt with the repayment plan. This allows you to get caught up on paying back that debt, rather than fight the interest that will continue to build. 

If your bankruptcy filing is not approved, then that credit card debt will resume from the point where you filed for bankruptcy. The credit card company will not be able to retroactively charge you for interest that would have accrued during the bankruptcy proceedings.

New Credit Card Debt Cannot Be Taken On During A Bankruptcy Filing

Once you start the process of filing for bankruptcy, you will not be allowed to use your credit cards to take on any new debt. Those accounts will be deactivated and no longer accessible to you. While it is possible to take on new credit card debt in some situations, it needs to be approved by the bankruptcy court. 

For more information about bankruptcy, contact a local bankruptcy lawyer.

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On Your Side During Bankruptcy

Declaring bankruptcy is not easy. Deciding that you have no other way out from underneath your debt and making the call to actually file bankruptcy paperwork is challenging from a mental and emotional perspective. But do you know what can help? Having a good bankruptcy attorney on your side. An attorney can help you navigate the sometimes complex legal jargon associated with bankruptcy filings. They can also help you assess your situation and determine which chapter you should file under. Learn more about bankruptcy attorneys and the guidance they offer on this website. This is a good place to start if your debt is getting unwieldy.




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