Phoenix Bankruptcy Law News

Credit Card Debt: Is Bankruptcy the Answer?

Credit card debt is one of the main reasons people file for bankruptcy. With many struggling during the economic downturn, more and more people are relying on credit cards to get by. Fortunately, credit card debt is one type of debt that is usually discharged in bankruptcy, meaning it's erased once your bankruptcy is complete.

However, there are downsides to filing for bankruptcy to get rid of your credit card debt. Below, we've included a few things to keep in mind if you're considering filing for bankruptcy to wipe out your credit card debt.

Is bankruptcy right for you?

Chapter 7 is the most common form of bankruptcy for individuals. In a Chapter 7 bankruptcy, the debtor's property and assets are seized and sold off. The creditors are then paid with the money made from the sale. Once the process is complete, the debtor is usually granted a debt discharge, meaning most of his debts, including credit card debts, are erased.

However, there are certain downsides to filing. If you're concerned with keeping your property, bankruptcy might not be the solution for you. While certain kinds of property, like your home and your car, are exempt in Arizona, the exemptions are capped, meaning you'll only be able to claim a small amount of the item's value.

In addition, filing for bankruptcy can have a disastrous effect on your credit score. You may find it hard to receive a loan, take out a mortgage, or get a credit card after filing for bankruptcy.

Bankruptcy alternatives

Bankruptcy isn't always the way to go. If you have a manageable amount of credit card debt, you're probably better off working out a budget, religiously sticking to it, and paying off your credit card debt the old-fashioned way. That way you can save your credit score and keep your property.

On the other hand, if there's no feasible way for you to keep up with your credit card payments, you can approach your creditors about negotiating a repayment plan. You'll probably have to show them that it's impossible for you to make your payments.

If so, it's in their best interests to work with you. They may be willing to lower your interest rates or monthly payments. You may also want to consolidate your debts by getting a debt consolidation loan or by transferring your debts to a low-interest credit card to simplify things.

Credit rehab

A bankruptcy can remain on your credit report for up to 10 years. To rebuild your credit score post-bankruptcy, remember to pay your bills on time, stick to your credit limits, and keep your credit lines open.

Before making a decision, it's in your best interest to discuss your situation with a bankruptcy attorney. Good luck!

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