A Typical Credit Card Debt Scenario
"I feel like I am paying too much towards my credit cards. A few months back I moved from my apartment into a new place. During the move, I was very disorganized and misplaced my bills. I didn't think it was going to be the end of the world missing one month's payment on my credit cards and thought I would just make it up the next month. I was shocked when I received my next month's bills - all 4 of my credit cards raised their interest rate on me to 29.9%! I only missed one month! I called all of them was told there was nothing I could do. I owe about $16,000 in credit card debt, and this new interest rate is killing me. To keep up with my payments on my credit cards, I had to miss a couple payments on my car. Now I am getting phone calls demanding payment. I am afraid I am falling down a hole that I may not be able to pull myself out of. A friend of mine mentioned to me the possibility of bankruptcy, but I do not want to damage my credit. What can I do, if anything, to get me out of this mess?"
Bankruptcy: Nothing to Fear
Many people fear the thought of bankruptcy not only because of the social stigma but the presumption their credit will be destroyed. If you have fallen behind in your credit card payments, missed your car payments, and/or stopped paying your rent or mortgage, your credit is already damaged! Nobody wants to file bankruptcy, however, bankruptcy should not be looked at as a financial scheme that damages your credit, but as a process that reestablishes your credit and offers a lifeline to those that have fallen into debt quicksand.
Bankruptcy and "Unsecured Debt"
Bankruptcy creates a way to eliminate credit card debt. Most credit card balances are considered "unsecured debt". That means that the credit card company has no hold on anything that belongs to you if you do not pay back your debt. "Unsecured debt" is specifically the kind of debt that bankruptcy is designed to remove. Apart from credit card debt, you may have other unsecured debts, and filing for bankruptcy can eradicate these as well. However, bankruptcy will not fully discharge your obligations to certain types of debts, including child support, alimony, tax debts, student loans, and any secured debts.
Bankruptcy can stop Creditor Harassment
If you are a victim of creditor harassment, immediately after filing for bankruptcy, the court system will send out notification to your creditors. And from this point on, creditors are considered to be under a "restraining order" and are not allowed to contact you to request payment. Depending on the type of bankruptcy, a 341 Meeting of Creditors will be scheduled and deadlines will be set for creditors to file a claim and attend the 341 Meeting of Creditors. Of course, all of the proceedings from here are dependent on the type of bankruptcy filed, so it is important to talk with a bankruptcy attorney who can more directly answer these questions.
When to Take the Gloves Off?
If you feel you are only barely able to scrape up the money to make your monthly payments, or feel you are drowning each month in debt, it may be time to hang up the gloves and consider filing bankruptcy. The government gives us the opportunity to have a "fresh start." The most important thing is not to panic, take a deep breath, and evaluate your financial situation with someone who can help.