High, overwhelming credit card debt is a very common problem. If you find yourself in a situation in which you can no longer pay your monthly credit card bills, you may be considering filing for bankruptcy. However, there are many things to know and understand about this procedure, beginning with the differences in types of bankruptcy filings and how each may affect your credit card debt.
It is important to take the time to understand the different types of bankruptcy filings and how one may be a positive step in the right direction or not in terms of your particular situation. Although speaking to a bankruptcy attorney is likely your most effective option once you do decide to file for bankruptcy, the information below can help you as you begin the process of researching for your decision.
Chapter 7 versus Chapter 13
Chapter 7 and Chapter 13 are the two common types of individual bankruptcy filings available through federal law. Both will affect your credit score negatively, but a Chapter 13 remains on your credit record for seven years while Chapter 7 stays for 10 years. One of the main differences is that in Chapter 7 bankruptcy, you do not file a repayment plan as you would with Chapter 13. While that may sound like an attractive option, because it discharges debt, it also has some disadvantages. In a Chapter 13 bankruptcy, also known as a reorganization bankruptcy, the repayment plan allows you to keep your property, which may not be the case with Chapter 7.
Credit card debts and Chapter 13
Credit card debts are, generally speaking, unsecured debt because an asset such as a house does not secure the debt as it does in the case of a mortgage debt. This is not always the case, as there is also secured credit card debt in some cases. You should investigate your particular debt to see what kind you have. Because your repayment plan will require you to repay what you can afford, if you are able to afford to repay more than your secured debt (which takes priority over unsecured debt), you will have to pay a percentage of the debt back. However, much depends on your disposable income and how much you can contribute to repaying the different classes of debt you are carrying.
Filing for bankruptcy is clearly a complicated issue. It is helpful for you to research the different types and try to understand which choice is best for you. However, a consultation with a bankruptcy attorney can also be your next step to understanding and clarifying your options for rebuilding your financial future.