Credit Card Debt versus Bankruptcy:

Except under extraordinary circumstances, your consumer bankruptcy options will be limited to filing for Chapter 7 or Chapter 13.

Chapter 7

This is generally the more comprehensive option. Within 90 days of filing, the unsecured debts you owe (such as credit card bills, personal loans, and certain medical expenses) will be absolved. You may have to liquidate much of your property and assets to pay off creditors. These assets can include: jewelry, your car, your home, and electronic equipment that’s not directly required for your job.

That said, you won’t lose all of your assets. Monies tucked away in 401(k) plans, retirement accounts, and other safe-havens may not be touched. Plus, you can keep many possessions that either cannot be resold for much money and/or which you need to function in day-to-day life, such as your bed.

Chapter 13

Filing for Chapter 13 allows you to keep much more of your property. For homeowners under the threat of foreclosure, this may be a good way to go. Unlike a Chapter 7 filing, which remains on your credit reports for a decade, a Chapter 13 filing stays on your reports for only seven years.

Chapter 13 bankruptcy does not discharge as many of your financial obligations as Chapter 7 bankruptcy does. In a sense, Chapter 13 is more of a repayment program than it is a debt discharge program. Essentially, it is mechanism by which you reorder and restructure your debts in a more favorable, simplified way.

Exemptions, Restrictions, and Long Term Impact

Rules governing bankruptcy exemptions, filing deadlines, requirements to qualify, and other restrictions vary from state to state. To opt for the more comprehensive Chapter 7 option, you must pass what’s known as a Means Test, which stipulates the minimum threshold of hardship to qualify. In many states, this is related to the median wage for the state. If you fail your Means Test, you can appeal to a bankruptcy judge for leniency due to special circumstances.

Not all debts can be discharged, even with Chapter 7 bankruptcy. Non-dischargeable obligations include:

• Back taxes owed to the Federal Government.
• Child support and alimony payments.
• Educational loans.

In extreme circumstances–for instance, if you lose both your arms or learn from your doctor that you only have a few months to live–the Court may allow the above debts to be discharged. But these cases are exceptionally rare.

Bankruptcy and Credit

Rebuilding your credit after bankruptcy can be a painstaking process, but it is possible to take small but concrete steps towards getting your credit score back up. By taking out secured credit cards and ensuring that you don’t run up new debts, you can build your FICO score back up. In some cases, you may be able to qualify for new loans (such as a mortgage or car loan) within as little as a year to 18 months.

Before you declare bankruptcy, let CDF Group analyze your situation and help you.