Credit cards provide purchasing solutions to those who aren’t carrying cash or wish to finance their payments. Some might find themselves charging far too much on their cards, often out of need. Anyone out of work or short on funds might need to charge more than they can afford to pay back. In time, such actions may lead to overwhelming debt. Filing for bankruptcy in a California court could become these account holders’ only solution.
Amassing credit card debt
After maxing out several credit cards, but debtor might not be able to repay the amount owed. Credit cards may not be the only source of the individual’s obligations, as a home equity line of credit or an auto loan could further stretch finances. A troubling situation might then play out, as someone may pay the minimum amount owed on the monthly credit card balance.
Paying the minimum amount may never drop the balance down if the payments only cover the interest. At some point, the debtor may become unable to pay, leading to collection action.
Exploring options for debt settlement and consolidation might be preferable to bankruptcy. However, if a person’s debt situation greatly exceeds their income, assets and ability to pay, filing for bankruptcy may be the only viable option to address financial troubles.
Bankruptcy and credit card debt
Personal bankruptcy involves filing for Chapter 7 or 13. Chapter 7 involves liquidation bankruptcy where nonexempt assets pay off a percentage of specific secured and unsecured debts. Some or all unsecured debt, such as credit card debt, face discharge. That means the creditor no longer has a claim for money owed.
Those whose financial situation is not dire enough to pass the Chapter 7 means test may file for Chapter 13. Chapter 13 involves making a payment plan on a portion of the owed debt, although some unsecured debt may be discharged.