Can you file bankruptcy on credit cards?

Can you file bankruptcy on credit cards: If you don’t have sufficient money to pay off your credit card debt and you think that the credit card issuer will forgive your credit card debt, then you are in a nightmare. Because no credit card issuer does such things, you have to clear your credit card debt by any other source. You have to think very deeply that not paying the credit card dues is not a solution, which will create many future obstacles for you.

Here in this article, we will cover everything related to credit card forgiveness and how you can pay off your credit card debt or any other solution.

Can you file bankruptcy on credit cards?

Let’s understand with a simple example. Suppose you have a $20,000 credit card balance and are 3 months late on your payments. In this scenario, your credit card issuer will be sold your debt to another debt-collecting agency. Now you and the agency start negotiating with each other.

After some negotiation, you agree with the agency to pay back the $15,000 in installments. In this case, the amount of debt forgiven is $5,000; in addition to this, you have to pay taxes on the forgiven amount.

But you can save your taxes and penalties on your credit card debt if you know beforehand. You have to talk directly to the credit card issuer and negotiate with them to forgive some amount and request not to sell your credit card debt to another collection agency. 

Credit Card Debt Forgiveness is Real or Fake?

Yes, debt forgiveness is real, but it is very difficult, and the company rarely forgives credit card debt. If you ask directly to forgive your credit card debt, then it is not possible; it depends on the present situation of your credit card debt. And rarely the card issuer provides debt forgiveness.

The credit card issuer can agree to a debt settlement agreement through continuous talk and hash negotiation. But this is the final step you should take on your debt because by doing this, your credit score will be negative for years, and you won’t be able to get a loan or credit card in the future.

If you are receiving any emails that government debt relief programs are also available in the market, then they could be spammy emails and wants to trap you. These emails are from different educational resources and fraud alerts, but you will not get any government email to settle your debt.

If you have any shortage of money, then credit card debt forgiveness is one of many solutions for paying credit card debt. Some better options are available in the market, like balance transfer and debt consolidation loans.

You should contact the credit card issuer bank directly and ask for the credit card relief programs. If you have a very serious credit card debt, in this case, Bankruptcy or non-profit credit counseling is a better option to settle your credit card debt.

Can you file bankruptcy on credit cards

Types of credit card debt forgiveness

There are different credit card debt forgiveness options like Bankruptcy and debt settlement.

Debt Settlement

When the borrower pays the credit card debt quickly, the issuer’s bank contacts the person and emphasizes paying the debt with fines and other penalties. But still, the defaulter doesn’t pay the debt and says I only have a few funds. Then in the last stage issuer bank goes with the settlement option. And in this scenario, the borrower needs to pay less amount that is owed. But this settlement crashes the borrower’s credit score, and in the future, no company will give debt to that person.

Note: The creditor will not collect a portion of the amount from the total debt at the time of settlement, but in some situations, the issuer bank report the settled debt to the IRS as canceled debt. And in this scenario, the canceled debt may be considered taxable, and you must mention it in your tax return report.

» MORE: Credit Card Debt Lawyers

The whole credit card debt settlement process is risky because the settlement company can do fraud against you, and you should be very careful about emails that guarantee debt settlement. It could be a scam for you.

Debt forgiveness Through Bankruptcy

The second method of credit card debt forgiveness happens through Bankruptcy. And this happens in the rarest case because declaring Bankruptcy can impact your credit score for up to 10 years, and due to the negative impact, you will never get a new credit card or any other financial service based on credit.

In reality, when you declare Bankruptcy, the court gives orders to release you from all your liabilities. Personal liabilities help to build credit and restructure finance and preserve assets.

If we look at the bankruptcy chapters, in chapter 7: the defaulter needs to sell off his assets and pay a portion of what is owed. While in Chapter 13: the pending debts are restructured so the defaulter can pay all the dues in the given time frame of 3 to 5 years. In Chapter 13, the defaulter needs to completely pay off the payment and get a discharge from the remaining debts.

Suppose you have taken different types of loans, like secured and unsecured. Then more priority will be given to paying for secured loans, then credit card debt. And your assets will be used to pay off your secured debt first; then, the remaining assets will be used to pay the unsecured loan. And after that, whatever debt is left is going to be forgiven, and this depends on the terms of Bankruptcy.

Every person’s lifestyle and needs are different, and different types of bankruptcy options are available. But you have to choose as per your situation and needs. If you still need clarification about how to get rid of credit card debt, you must consult a good bankruptcy attorney.

Credit Card Debt Relief

As we talked earlier, different types of options are available for credit card debt relief. There are some benefits and risks of credit card debt relief options. So you must know all the consequences of credit card debt relief methods. 

Key takeaways

  • As per the Consumer Financial Protection Bureau (CFPB) rules, the lenders need to know what options are available for the borrower.
  • If you want to pay your debt or lower the interest rates, balance transfer, and debt consolidation are the best options.
  • An authentic bankruptcy attorney could advise you on paying off your credit card debt.
  • If you are thinking about credit card debt settlement companies, you must check all the things of the settlement company because the settlement could be risky.

Here are more ways to settle your credit card debt–remember that each process has its major pros and cons. And some methods might not work for everyone. So, it is highly advisable to do proper research and take advice from an expert person.

Contact Credit Card Lenders

Contact Credit Card Lenders

The CFPB and FTC should contact directly to the debt lenders to find the best solutions to pay the debt. You can ask lenders to assign a new due date, which will help you be free from debt easily.

You can easily find the contacts of lenders from their official website or the back side of the credit card. 

Credit Card Balance Transfers

Transferring debt from one credit card to another is also a great option. It could be more manageable for you to make payments, and it would be more beneficial if your other credit card had a lower annual percentage rate (APR).

Maintaining a credit score is highly recommended because a high credit score leads to a low introductory rate. You should also check the balance transfer APR charges; some credit cards offer 0% APR, which could benefit you. 

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Debt Consolidation Loan 

This is similar to a balance transfer, but the main difference is we have to take a personal loan to pay the credit card debts. Paying debt off from personal loans is a good idea because the APR of personal loans is low compared to credit card debt. You can use a lump sum amount to pay off credit card debts and the remaining loan balance separately.

Using a personal loan to pay the credit card dues is a temporary solution. Because in the last you have to pay the personal loan with some interest. So you have to sell some of your assets to eliminate these credit card debts or personal loans.

You have to take a personal loan as per your financial situation. If you take a personal loan for a longer time, then the higher interest you have to pay and the amount of EMIs is less, and you can easily pay them. In the same manner, if you are taking a personal loan for the short term, then the interest will be low, but the amount of EMIs is high, and paying large amounts EMIs is touch for you. So, choose the right plan for you as per your financial condition.

Credit Counseling

A credit attorney could provide the best advice about your debts, money, good budgeting, and many more. As per the CFPB, most of the credit counseling companies are non-profit organizations, and you will get the following things:

  • Good advice for managing your money and debts.
  • Right ways of budgeting expenses and debt payments
  • Help you to manage your credit score and reports
  • Well-managed plan to pay off your debts.

Best Way to Manage Debt

The debt management plan by the CFPB is to make a single payment with the help of a credit counselor, and the remaining payment is paid off in monthly installments. You can also ask the creditors to lower the interest rates, increase repayment dates, and waive the extra fees. Sometimes the counselor successfully lowers the monthly payments so that you can try once.

Most credit card debt counseling companies are non-profit organizations, but some companies charge fees to give advice and manage the debt. As per the CFPB data, a reputable company provides all these services free of cost. So, you have to find a good counseling company.

Conclusion

Many debt relief options are available in the market, but the consequences of all these options are different, so you have to take a financial expert’s advice to get rid of credit card debt. But you have to choose the best option that suits your profile and conditions. 

Does credit card debt forgiveness taxable?

As per 1099-C, credit card debt forgiveness is taxable.

Is credit card forgiveness legal or illegal?

Credit card forgiveness is legal, and there are different ways of credit card debt forgiveness. But some companies do scams in the name of the settlement of the debt.

How to settle credit card debt without affecting credit?

For this, you can directly ask the credit card issuer to offer the best price so you can pay your credit card debt. And the other best option is to ask a debt expert. The debt expert can guide you in a better way as per your present situation.

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