Credit Card Bankruptcy Alternatives

In the 12-months ending 31 December 2010, a total of 1,100,116 people filed for credit card bankruptcy under chapter 7. Although not everyone is able to qualify under the 2005 code, you can become free from debt in just 4 to 6 months.

It is normally possible to clear most credit card debt, unsecured personal loans, auto accident claims (that didn't involve alcohol), repossession deficiencies, negligence claims and business debt. Not all personal debt can be written-off by filing for bankruptcy. You cannot clear car loans (if you wish to keep the car), secured debt, student loans, alimony, unpaid taxes, child support or a criminal fine or restitution.

How to File for Credit Card Bankruptcy

Most people file for liquidation bankruptcy to eliminate serious debt. Since the code was reformed by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), your income will need to be below the median level for your state. It may also be necessary to hand over any non-exempt assets, such as a valuable collection or luxury car, to a trustee so they can be sold and the proceeds handed over to creditors. Chapter 7 bankruptcy will show on your credit report for a period of 10 years.

Not everyone will qualify for chapter 7; this could mean that the best debt-free solution is chapter 13, also known as reorganization bankruptcy. This allows an individual to keep non-exempt assets in return for a monthly contribution for a 3 or 5-year period. At no time during this period can a creditor or collection agency approach you for repayment because you'll enjoy full court protection. Chapter 13 bankruptcy will show on your credit report for 7 years.

Debt Management Plan as an Alternative to Bankruptcy

This debt-free solution can help you to avoid credit card bankruptcy. Although there is no debt elimination, a debt management plan dramatically improves affordability. A financial expert will work out a debt repayment strategy based on what you can realistically afford to offer your creditors each month.
The management charge will be about 15% of each monthly contribution. This means that if you pay in $200, $170 will go directly to those you owe money. In order to help clear your credit more quickly, interest and charges may be frozen.

Debt Settlement Program as a Bankruptcy Alternative

A debt settlement company will negotiate with your creditors in an effort to write-off up to 50% of your unsecured debt. The remainder is repaid by a series of monthly payments over 12 to 36 months.

It's important to choose the right company before signing-up for a debt settlement program. As per Federal Trade Commission (FTC) rules, management charges should be taken from monthly contributions and not in up-front. A debt settlement company should also have a good reputation and be held in high regard by the Better Business Bureau.

Before proceeding with credit card bankruptcy, make sure that you have chosen the right debt-free solution. Talk to a qualified debt counselor to see if a debt management plan or debt settlement program is more appropriate.

Disclaimer: This article in no way attempts to provide legal, financial or tax advice. One should consult a licensed attorney, tax advisor, or other qualified financial professional before proceeding.

Updated: 29 September 2011