Finding Solutions to Discharge Your Credit Card Debt
Many find themselves struggling if they should file for bankruptcy because of their credit cards. High-interest rates, unexpected expenses, and even medical bills can quickly turn manageable payments into a suffocating burden. If you’re in this situation, you’re not alone in Broomfield, CO.
Fortunately, bankruptcy can offer a path toward financial relief from credit card debt.
Quick Summary:
- Chapter 7 and Chapter 13 are the two main bankruptcy chapters that can discharge credit card debt.
- Sometimes, credit card debt can not be discharged due to various factors, including how recently the charges are made.
- Qualifying for Chapter 7 bankruptcy depends on your income and expenses through the means test.
- Although most credit card debt can be eliminated in bankruptcy, there are exceptions like fraudulent charges or luxury goods.
- After filing for bankruptcy, credit card companies will likely cancel your cards.
- Strategies to rebuild credit include secured credit cards, responsible credit card use, on-time payments on all debts, and credit report monitoring.
- Microloans, rent reporting services, credit builder loans, and retail store credit cards can also improve your credit score.
Is My Credit Card Debt Dischargeable in Bankruptcy?
While bankruptcy can be a powerful tool for discharging credit card debt, it’s crucial to understand that not every situation is guaranteed. Here’s a breakdown of the factors to consider:
Type of Bankruptcy
There are two main chapters for individuals: Chapter 7 and Chapter 13. In general, most credit card debt is dischargeable in both chapters. However, there may be exceptions.
Exceptions to Credit Card Debt
Credit card debt is generally dischargeable in bankruptcy. The Bankruptcy Code assumes this unless the creditor proves misuse. Different factors can affect creditor objections, such as:
- Amount of charges on the card
- How recently the charges were made before filing
- Cost for the creditor to fight the discharge in court
Means Test
The court uses the means test to assess your income to determine if you qualify for Chapter 7. If your income is above the median for your household size in Colorado, you may not be eligible for Chapter 7. You might need to explore Chapter 13, which involves a repayment plan.
Can a Credit Card Company Prevent Me From Discharging Debt?
In most cases, credit card companies cannot completely prevent you from discharging credit card debt. There are a few situations where they may challenge the dischargeability of your debt:
Fraudulent Charges
If the credit card company can prove you obtained the credit card or made specific charges through fraudulent means (like lying on your application or making false statements), that debt may not be dischargeable.
Recent Luxury Goods
Bankruptcy law has a provision for “luxury goods.” If you charged more than $725 worth of luxury goods within 90 days of filing for bankruptcy, the credit card company may argue that you didn’t intend to repay the debt and challenge its dischargeability.
Will a Credit Card Company Cancel My Card When I File For Bankruptcy?
Yes, a credit card company will likely cancel your card once they find out you filed for bankruptcy. That happens for a few reasons:
Discharged Debt
Bankruptcy eliminates your legal obligation to repay certain debts, including credit card balances. The credit card company can’t guarantee you’ll repay them after bankruptcy. They may also choose to cancel your card as a risk-management measure.
Contract Termination
When you file for bankruptcy, it essentially cancels existing credit card agreements. Creditors cannot close your account before its expiration date simply because you haven’t used it or incurred interest.
However, they can terminate an inactive account after 180 days of inactivity. Inactive accounts have no charges made and no outstanding balance or debt. That means the credit card company can no longer legally extend your new credit.
Can I Still Get a Credit Card After Bankruptcy?
While bankruptcy can relieve overwhelming credit card debt, it will also negatively impact your credit score for several years. Here’s a breakdown of what to expect:
Secured Credit Cards as a Starting Point
Obtaining a traditional unsecured credit card might be difficult immediately after bankruptcy. Secured credit cards can be a great option to rebuild your credit. These cards need a security deposit that becomes your credit limit. You can gradually improve your credit score by using the card responsibly and making on-time payments.
Considering Alternative Options
While credit cards offer convenience, debit cards can be a viable alternative for everyday purchases. They allow you to spend only the money you have available, avoiding the risk of accumulating new debt.
Can I Still Rebuild My Credit After Bankruptcy?
Rebuilding credit after bankruptcy is not only possible. It’s also a critical step toward achieving long-term financial stability.
Bankruptcy will undoubtedly impact your credit score. However, the extent of the decline and speed of recovery depends on various factors. Here’s how you can rebuild your credit after bankruptcy:
Responsible Credit Card Use
If you get a traditional unsecured credit card, focus on responsible usage. Keep your balances low and make on-time payments to improve your credit score.
On-Time Payments for All Debts
Timely payments on all your bills, including utilities and rent, contribute positively to your credit score.
Credit Report Monitoring
Get and analyze your credit reports regularly. Get legal help to guide you in disputing any errors hindering your score.
Are There Other Ways to Rebuild My Credit?
Secured credit cards and responsible credit card use are helpful tools for rebuilding credit. However, there are several other strategies you can incorporate into your plan. We recommend a multifaceted approach to maximize your credit score improvement:
Microloans
Some non-profit organizations offer small loan programs designed to help small businesses rebuild credit. These typically involve on-time repayment terms reported to credit bureaus, which can positively impact your score.
Rent Reporting Services
While rent payments traditionally haven’t factored into credit scores, some services allow you to report on-time rent payments to credit bureaus. That can be a valuable strategy, especially if you have a history of responsible rent payments.
Credit Builder Loans
Need a jumpstart on your credit history? Consider a credit builder loan. These loans work like this: a financial institution, often a credit union, puts away a small sum (usually $300 to $1,000) in a savings account they lock. You then repay them in small installments over six to 24 months.
These repayments get reported to credit bureaus, helping you build credit. Once the loan is paid off, you get all the saved money back.
Retail Store Credit Cards
Many stores, gas stations, and department stores offer their credit cards. These cards are generally easier to qualify for and come with lower credit limits. That makes it easier to handle expenses without building too much credit.
Contact Our Bankruptcy Lawyers Today!
If you’re considering bankruptcy from using credit cards and getting into debt in Broomfield, CO, don’t hesitate to contact us. The Law Office of Clark Daniel Dray can provide the guidance and support you need throughout the process.
Our bankruptcy law firm offers a free consultation to discuss your situation and explore your options for bankruptcy from credit cards. Remember, you are not alone. There is hope for a brighter financial future. Let us help you take the first step toward achieving financial freedom.
