Filing for bankruptcy is a financial tool that can help you regain control over your finances as well as a type of protection. If you owe a significant amount of money in credit card debt, bankruptcy could be the best option for you. Read on for the facts and then contact Law Offices of Terrence Fantauzzi at (909) 552-1238 to request a free legal consultation.
Have credit card debt of more than $5,000? Your only option may be Chapter 7
Consumers who earn less than the area median income are not eligible to file for bankruptcy under Chapter 7. California’s median salary at the time of writing is about $62,000. So what happens if your income is less than that? You will almost always be eligible for Chapter 7 bankruptcy.
Let’s discuss what that means. You probably make just enough money each month to cover your cash flow needs. It also means that even after three to five years, you’ll still have trouble paying off $5,000 or more in credit card debt. Over the course of that period, the interest will compound, the balance will increase, and you will end up paying back much more than you initially borrowed.
Credit card debt and other unsecured debts are forgiven under Chapter 7
If you don’t have any assets and make more money than the average Californian, you can totally discharge most unsecured debt under Chapter 7 of the bankruptcy code. Unsecured debt is a pledge to repay a loan that isn’t “secured” by any tangible asset. (A “secured” debt is one that is backed by an asset, typically a mortgage on a home.)
What are the most prevalent types of unsecured debt that Chapter 7 can discharge?
- Charge card debt
- Outstanding medical debt
- Payday and personal loans without security
- Lease violations or unpaid shortfalls on repossessed vehicles
I want you to remember the following if you only remember one thing from this article: A financial instrument and a strategy plan are both parts of Chapter 7. After we file, your income begins to work for you rather than going straight to a credit card bill that you’re having trouble paying off.
Your credit won’t be permanently destroyed by Chapter 7
There are several misconceptions regarding Chapter 7 bankruptcy and your credit score. Yes, even after being released, Chapter 7 will remain on your credit report for a number of years. There is no doubt that filing will lower your credit score.
However, your debt-to-income ratio is one factor used to determine your credit score and creditworthiness. The revolving credit balances that the credit rating agencies keep track of are compared to your incoming income. Your credit score already suffers when you have more debt than income.
When you bargain with creditors, a certain amount of uncertainty always exists. Your credit history shows liens, rulings, and collections for a very, very long time. Your credit is already in pretty bad shape if you’re presently avoiding collection agencies. Yes, Chapter 7 is a success. After filing for bankruptcy, you come out on the other side with higher liquidity (cash flow) and permanently get rid of all of that debt.
A fresh start through Chapter 7 bankruptcy
Liens, judgements, and collection accounts remain on your credit report as well as in your mind until they are resolved. One of the main factors contributing to stress and worry is debt. Chapter 7 bankruptcy is a financial tool you can use when you need it. With it, you can begin to rebuild and obtain the new beginning we refer to. Call Law Offices of Terrence Fantauzzi now at (909) 552-1238 to learn more.