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If you feel like you’re drowning in credit card debt, you’ve likely considered whether to file for bankruptcy. Although this step can wipe out some types of debt, it can also cause long-term damage to your credit. Here’s what you need to know about the ins and outs of filing for bankruptcy.
Chapter 7 bankruptcy is the most common type of bankruptcy filing for individuals with significant credit card debt. In most cases, you can keep assets such as your home or vehicle as long as you promise to continue making mortgage and car payments.
Many types of unsecured debt can be discharged through Chapter 7 bankruptcy, including:
Debts that are not dischargeable with Chapter 7 bankruptcy include:
The bankruptcy court will use a standard called the means test to determine whether you can pay off your outstanding debt. You’ll need to document your income for the past six months, with adjustments based on whether you’ve recently lost your job or gained a new job with higher pay. Your bankruptcy attorney will determine whether your projected income is lower than the median income in your state. If you pass this part of the means test, you are eligible to file for Chapter 7 bankruptcy.
If your income is expected to be higher than the median for your state, your attorney will apply the second part of the means test. For this analysis, you’ll need to provide information about your expenses for the past six months. Allowable expenses, such as housing, food, and transportation, will be deducted from your projected income.
The resulting amount is the disposable income you can put toward paying off your debt. If this number is lower than a certain threshold, you can file Chapter 7. Otherwise, you can file Chapter 13 bankruptcy, which reorganizes your qualifying debts rather than eliminating them.
Even if you pass the means test, you are not eligible to file for Chapter 7 bankruptcy if you have already done so within the past eight years or if you have filed for Chapter 13 bankruptcy within the past six years. You cannot file bankruptcy if you filed a bankruptcy petition in the past 180 days and failed to appear in court, did not follow court orders, or subsequently dismissed the filing.
If you have passed the means test and you think bankruptcy is the right choice for you, you’ll need to follow the step-by-step procedure established by the court.
Even though you are likely in dire financial straits if you’re considering bankruptcy, you will still need to come up with a filing fee. This ranges from about $1,500 to $2,500 for a Chapter 7 filing and between $2,000 and $4,000 for a Chapter 13 filing. With the latter, these costs can be rolled into your debt repayment plan. Chapter 7 fees must be paid upfront.
You should be able to find a bankruptcy attorney who will provide a free consultation to determine whether bankruptcy is right for you before you proceed. You can also look for discount programs in your area that assist low-income individuals who are filing for bankruptcy.
Your bankruptcy filing will also be publicly available information. In some states, this can hinder your ability to seek employment, particularly if you work in finance or taxation. Because your credit report will also show the bankruptcy, you may be unable to qualify for mortgages or other types of loans for several years.
For help deciding whether you should file bankruptcy to wipe out your credit card debt, contact the team at Solvable. We can match you with a well-reviewed and trustworthy debt relief agency who can help you explore your options by analyzing your full financial picture. With experienced advice, your staggering debt could be a thing of the past.