Credit Card Debt in the bankruptcy process

However, as people get back to work, they find that they are unable to repay the credit card debt while still living with their normal bills.  There are many debt consolidation companies who are advising not to file for Chapter 7 or Chapter 13 bankruptcy. Do not listen to them. The majority if not all of their fees come first before any money gets paid to your credit card companies. Most people who use these companies fail to complete their deals made by the debt consolidation companies, and are left off in a worse situation than when they first started making payments to the debt consolidation company. By filing a Chapter 7 or a Chapter 13, you will be able to eliminate the credit card debt either completely or significantly reduce the credit card debt. The end result of a Chapter 7 is that you will pay back nothing. In a chapter 13, you may be required to pay back a small portion of what was owed depending on the value of your assets.

Under Florida law, if you have lived in the state for the better part of two years, you will be entitled to Florida exemptions.  These exemptions are mostly defined by the Florida Constitution and Florida Statutes Section 222. There are other special exemptions in Florida Statutes, but the main exceptions are defined by the Florida Constitution and Florida Statutes Section 222.  When you file a Chapter 7 bankruptcy, your exemptions will be different depending on whether you own a homestead or not. If you own a homestead property in Florida, you are allowed $1,000.00, of personal property exemptions, and an additional $1,000.00, exemption in any equity you might have in an automobile. The personal property exemption includes, but is not limited to any cash on hand, security deposits, money deposited in all bank accounts, the value of your household goods, clothing and jewelry. Also, the bankruptcy trustee will look at any income tax refunds, whether you may have the ability to sue someone, if someone owes you money, and any equity you have in an automobile over $1,000.00. If you do not own a homestead, you will be able to increase the personal property exemptions to $5,000.00. An exemption is something that your creditors (like credit card companies) cannot touch.

Additionally, there is a benefit to being married in Florida. If you have jointly owned property with your spouse, and the credit card debt is only in your name, that credit card company cannot take the jointly owned asset. In fact, that jointly owned asset will not count towards your exemptions. If you have assets more than you are allowed and have after filing a Chapter 7 bankruptcy, the Chapter 7 Trustee will take the excess assets and sell them for the benefit of your unsecured creditors, which include your credit card debts. The goal obviously, is to pay nothing to the Chapter 7 Trustee and have your credit card debts wiped out. 

If you have in excess of the assets that you are allowed, you may want to file a Chapter 13 rather than a Chapter 7. When you file a Chapter 13, you must pay your creditors what you would have had to pay to the Chapter 7 Trustee over a period of 3-5 years rather than all at once. There are also many other options in filing a Chapter 13. You may be able to reduce the interest you are paying on your car.  You may even be able to pay the value of your car rather than the balance due on the car under certain circumstances. If you are behind on your mortgage, you will be able to cure any amounts that you are behind to be able to keep your house.  If you owe a substantial amount to your credit cards, that amount will be reduced to the amount of assets that you have over and above tor exemptions. If you have more serious debts than just credit card debts, a chapter 13 repayment plan will only require that your credit cards be paid a very minor amount no matter how much you owe in credit card debt.  Say for example that you owe $30,000.00 on your credit card debt.  If you file a chapter 13 bankruptcy and you have no assets above your allowed exemptions, you can pay as little as $300.00 over five yes among all of your credit card debt.  So the credit card companies will split that $300.00, among themselves.  At the end of the 3-5 year period, you will have no credit card debt, and no income tax liability for not paying the credit card companies in full.  If you go to a debt relief agency, you will have a tax liability for what you did not pay them. So if you owed credit card companies $30,000.00, and you end up settling for $15,000.00, you will have to pick up the $15,000.00 that you didn’t pay them as income. Now rather than owing the credit card companies, you will owe the IRS the additional income you just picked up.

Another benefit of filing a bankruptcy, Chapter 7 or a Chapter 13, is that you will immediately be able to reestablish your credit. Your credit report is like a report card.  Once you file a Chapter 7 or a Chapter 13 bankruptcy, it’s like another F. The debts you have on your credit cards are C’s, D’s and/or F’s. The bankruptcy is just another F. But once you have that final F, you can start to rebuild your credit because now you owe $0. You can only go up from there. The bottom line is that bankruptcies are very helpful to your credit because the only way to rebuild your credit is to get to a point where you owe $0. After the bankruptcy is filed, you can use the money you were spending on your credit card payments on things you need to buy in the future, not for things you already bought in the past. 

There has always been a stigma on filing bankruptcy. But times have changed. Bankruptcy is no longer a big deal to credit card companies, car loan lenders or mortgage companies. Within two years of filing for bankruptcy, your credit score should be in the mid to high 700’s, and if you can afford it, you should be able to buy whatever you want.

If you are facing Credit Card Debt we may be able to help. Michael Brooks is a Bankruptcy attorney who offers services in Miami – Broward – Palm Beach counties. Contact us for a FREE consultation at 954-859-6662.