Can You File For Bankruptcy to Avoid Defaulting on a Credit Card in Pennsylvania?
Unfortunately, it is not uncommon for someone to have a credit card in their wallet they are unable to use because it is maxed out. Nonetheless, they keep making the minimum monthly interest payment every thirty days. In some cases, there are multiple cards and people are transferring entire balances in hopes of getting a lower interest rate or slight reprieve.
As long as you are making a regular payment, a credit card company is unlikely to work with you in lowering the amount. In fact, unless you have missed payments, a credit card company usually will not consider negotiating a settlement at all. In many cases, filing for bankruptcy could be a way to eliminate your debt and avoid defaulting on your credit card payments.
At Young, Marr & Associates, our attorneys know that bankruptcy is a scary word. However, in many situations, bankruptcy is the best way to obtain a fresh financial start. To discuss your credit card debt with one of our experienced Philadelphia bankruptcy lawyers, call (215) 701-6519.
How Credit Default Happens in Pennsylvania
When you receive a credit card, you agree to certain contractual terms. For instance, you are expected to make a minimum payment by a specified date every month. When six months of payments are missed, the credit card will be in default. At this point, a credit card company will probably close your account and report the default to the three major credit bureaus.
Late or missed payments during the six months leading up to the default will also be reported, lowering your credit score. If you attempt to apply for a personal loan or an additional credit card, your application will likely be denied.
If you have missed a payment and are fearing a default, or have already defaulted, several options are available. First, you could pay the entire balance. Unfortunately, most people who have fallen behind in their payments do not have the financial means to pay the balance. This is especially the case when interests and other fees have accumulated. Another option is to try and settle the debt for a lower amount. Not every credit card company will accept a smaller amount. Others will want a substantial down payment, with the balance being paid over a three or six-month period. Additionally, any amount of debt that is forgiven is considered taxable income. You could be settling one problem and opening another.
Another option available is filing for bankruptcy. Depending on your situation, you could qualify for Chapter 7 or be required to file Chapter 13. Both types of bankruptcies offer advantages over negotiating with your credit card companies or allowing your cards to fall into default.
Chapter 7 Bankruptcy and Credit Card Debt in Pennsylvania
If you qualify, filing a Chapter 7 bankruptcy could be the easiest and fastest way of eliminating credit card debt and avoiding a costly default. Designed for people with limited income and property, Chapter 7 allows a debtor to discharge the vast majority of their unsecured debt in four to five months. While it is true that filing for bankruptcy will also negatively impact your credit score, it puts you in a position to start rebuilding your credit.
If you default on your credit card or if you keep making burdensome minimum payments, it does nothing to offer you relief. You also cannot build your credit score back by defaulting on your credit cards. By eliminating your credit card debt through bankruptcy, you have the ability to start taking proactive steps to regain your financial freedom. Additionally, there are no tax consequences when debt is discharged. This means that any debt that is eliminated through bankruptcy is not considered taxable income.
To discuss the requirements and advantages of Chapter 7, contact our Pennsylvania bankruptcy attorneys.
Chapter 13 Bankruptcy and Credit Card Debt in Pennsylvania
Some people are not eligible to file Chapter 7. If you make too much money or have non-exempt assets, you could be required to file Chapter 13.
A Chapter 13 bankruptcy is a reorganization of your debts. When someone files Chapter 13, they propose a bankruptcy plan to pay the creditors back. Depending on the debtor’s income, assets, and debt, some or a portion of the total debt will have to be paid.
Credit card debt is unsecured debt. Therefore, the amount paid is determined by a filer’s monthly disposable income and non-exempt assets. So, what does this mean? When a person files for bankruptcy, one of our Pennsylvania bankruptcy attorneys will calculate their disposable monthly income through the means test. This test looks at the filer’s last six months of household income and expenses to determine what money is available for unsecured creditors. In many cases, even though you are paying a credit card company through your bankruptcy plan, it is more advantageous than a settlement agreement.
For example, a person has three credit cards with a total balance of $65,000. They have been paying the minimum balance on one and two are heading towards default. Their means test calculation determines they have $200 of disposable monthly income. Therefore, they will be required to pay $200 a month for five years to their unsecured creditors. In this case, instead of paying $65,000, they will only pay $12,000 of their total credit card debt. Any remaining balance would be discharged. This amount is significantly lower than what the credit card companies would settle for outside of bankruptcy. Additionally, the discharged debt is not considered taxable income. Chapter 13 bankruptcies are complicated, so it is crucial to speak with our Philadelphia Chapter 13 bankruptcy attorneys before filing.
Contact Our Pennsylvania Bankruptcy Attorneys if You are Overwhelmed with Credit Card Debt
Credit card debt could feel like being crushed under a mountain of bills with no options. Though many people might not believe it, bankruptcy is often the best choice to deal with overwhelming debt. The Pennsylvania bankruptcy attorneys at Young, Marr & Associates are available to answer your questions regarding credit card debt and bankruptcy. Call (215) 701-6519 to schedule an appointment at no charge.