Credit Card Bankruptcy Alternatives

The number of U.S. citizens declaring credit card bankruptcy exceeded 1 million people over the course of 2008. The U.S. bankruptcy courts dealt with a total of 744,424 chapter 7 and 362,762 chapter 13 bankruptcy cases. The numbers are expected to be even higher during 2009.

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 declaring personal bankruptcy. You cannot clear car loans (when you wish to keep the car), secured debt, student loans, alimony, unpaid taxes, child support or a criminal fine or restitution.

Credit Card Bankruptcy

Chapter 7. Most people file under chapter 7 (also known as liquidation bankruptcy) in order to write-off serious debt. Since the laws were 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 in order that 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.

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

Debt Management Plan

This debt-free solution can help you to avoid credit card bankruptcy. Although there is no debt write-off, a Debt Management Plan will help to dramatically improve affordability. A financial expert will work out a debt repayment strategy based on what you can realistically afford to offer 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 any money owed more quickly, most creditors will freeze interest payments.

Debt Settlement Program

A debt settlement company will negotiate with your creditors in order to write-off up to 50% of unsecured personal debt. The remaining amount owed is re-paid by a series of monthly payments over 12 to 36 months. The debt write-off won't actually happen until the final repayment has been paid.

It is important to choose the right company before signing-up to a debt settlement program. 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.