Credit Card Debt Still A Challenge Despite Dip In Spending

Since the start of the pandemic, the average amount of credit card debt most families have is dropping. But for families in financial distress, credit card debt remains a substantial burden. Filing for bankruptcy can relieve that burden, but exactly how depends on the type of bankruptcy filed.

Historic Drop In Credit Card Debt

According to data from the United States Federal Reserve:

“Credit card balances fell slightly in the third quarter [of 2020], following the $76 billion decline in 2020Q2, the steepest decline in card balances in the history of the data (since 1999). The decline in card balances reflects continued weak consumer spending amidst the COVID-19 pandemic, as well as households paying down existing credit card debt.”

Researchers determined families who were stuck at home weren’t using their cards to travel, shop, or dine out. And families who were not in dire straights used stimulus money to pay down their credit card debt. Whether this trend continues likely depends on how long the pandemic lasts and the ways it continues to impact the economy.

However, the pandemic has not been a financial boon to every family. Record numbers of people have lost their jobs and had to use credit cards to pay for basic needs. Others have medical bills piling up after coming down with the dreaded disease. To get back on a firm financial foundation, bankruptcy may be the best option.

What Happens To Credit Card Debt During Bankruptcy

What happens to credit card debts when a debtor files for bankruptcy depends on which chapter of the bankruptcy code a debtor files under.

A Chapter 7 bankruptcy is a clean slate bankruptcy. A filer that is eligible for a Chapter 7 bankruptcy keeps some assets, but most assets are sold off and the proceeds of the sale are used to pay off debts. If any credit card debt remains, it is typically forgiven. Many filers do not have assets to sell off, and that is okay too. Creditors do not expect to get paid back if a debtor files for Chapter 7 bankruptcy.

The other chapter of the bankruptcy code that families with credit card debt may consider filing under is Chapter 13. Under a Chapter 13 bankruptcy, the filer can decide to hold on to most of their assets instead of selling them off. The court then works with the filer and the filer’s creditors to come up with a repayment plan that will put the filter back on firm financial footing. Credit card debts are typically paid off rather than forgiven in a Chapter 13 bankruptcy, but some debts may be forgiven or at least consolidated with more favorable repayment terms.

Do You Qualify?

Perhaps one of these options appeals to you more than the other, but it isn’t just a matter of deciding which option best suits you and moving forward. You’ll need to meet with a bankruptcy attorney, provide extensive financial documentation, and let them evaluate your options.

Be ready to provide two years of federal tax returns, six months’ worth of paystubs, copies of current bills, a list of all debts, credit reports from all three agencies, any judgments pending against you, and any debts in collections. You’ll also need to provide documentation of your assets, no matter how small or large they may be.

If you pass the means test, you’ll be allowed to file for Chapter 7 bankruptcy. If you fall in a higher income group, you may instead be permitted to file for Chapter 13 bankruptcy.

If you live in fear of your phone ringing, being served with a lawsuit for your credit card debt or running out of available credit because it’s all you have left to you after monthly payments, you do not have to keep going this way. Bankruptcy can give you room to breathe and give you the chance to start over.

Experienced Bankruptcy Attorneys Helping Debtors In Mobile And Beyond

The Padgett & Robertson team has lots of experience helping Mobile area debtors drowning in credit card debt figure out what chapter of the bankruptcy code to file under, and then guiding them through the bankruptcy process.

If you want to talk to someone about what options are available to you get rid of your credit card debt, we are here for you.