If you use a credit card, this is one of the best ways to improve your credit and demonstrate to potential lenders that you're a good person to loan to. Having one is essential if you want to buy a house or a car.
Buying items with money you don't have yet can work in principle, especially when you know you can pay off your credit card balance with your next paycheck. However, purchases can quickly spiral out of hand, causing you to rack up thousands of dollars of credit card debt.
Once you factor in interest payments and monthly expenses like groceries, gas, and mortgage payments, credit card payments contribute to a mountain of debt that you may feel you can never escape from.
If you're in this situation, you're far from alone - credit card debt is one of the main reasons Americans file for Chapter 7 bankruptcy. Read on to see when credit card debt is too much, how declaring bankruptcy can help, and how you can start to rebuild your credit after your debts are discharged.
How Do You Determine Your Credit Card Debt Is Too High?
Filing for chapter 7 bankruptcy indicates that you don't have the assets to repay any of your debts. In contrast to chapter 13 bankruptcy, chapter 7 bankruptcies won't restructure your debts to create a repayment plan; instead, your debts will be discharged. You can't (and shouldn't) file for chapter 7 bankruptcy if you make enough money to slowly but surely pay off your credit card.
Before you decide to file for bankruptcy, make an honest accounting of your finances. Look at how much money you need to spend per month on groceries, child support, and rent. Decide which expenses are necessary and which you can cut down on, and determine whether you can make minimum monthly credit card payments.
You should definitely file for bankruptcy if you've already maxed out multiple credit cards - opening another credit card will likely only hurt your credit at this point. If your finances are already in troubled waters, you won't get a reasonable interest rate, you'll continue accruing debt, and you'll have to file for bankruptcy a few months or years down the line but with more debt on your shoulders.
Can You Still Use Your Credit Card After Filing?
In most cases, no, you cannot continue to use your credit cards or open any new accounts while you're in the process of discharging your debts through a bankruptcy filing. In fact, if you charge too much to an account within 90 days of filing, the court can determine you've committed fraud and hold you responsible for subsequent payments.
On the other hand, once you file for bankruptcy, you can stop making credit card payments. Your debts will be discharged anyway, so you don't need to put more money into making payments to a credit card you'll never pay off.
How Can You Rebuild Credit After Filing Bankruptcy?
If you decide to file bankruptcy due to credit card debt, you'll be understandably wary of opening a new credit card account after completing the process. However, for better or worse, credit cards are essential in reestablishing your credit.
Most people who file for bankruptcy learn from the experience and act cautiously when they open a new credit card. Plus, banks won't open accounts with greater amounts of credit than they think you can afford. Investing in a secured credit card can give you peace of mind and help you gradually reestablish credit.
Where Can You Get Advice on Filing to Discharge Credit Card Debt?
Not sure whether you should file for bankruptcy? Meet with a bankruptcy attorney who can help assess your situation and plot your course forward. If you live in the Newport area, Terry E. Hurst, Attorney At Law, is here to help. Schedule your initial consultation today.