Credit card balances can become difficult to manage when interest, fees and missed payments continue to increase what you owe. For some North Carolina residents, bankruptcy may provide a legal path toward eliminating certain unsecured debts, including qualifying credit card balances.
However, filing bankruptcy does not automatically erase every debt, and the type of bankruptcy you file can affect how your debts are handled.
How bankruptcy can address credit card debt
Chapter 7 bankruptcy can help discharge many unsecured debts, including ordinary credit card debt, if the debt qualifies. A discharge releases you from personal liability. This means the creditor cannot continue trying to collect the discharged balance.
However, federal bankruptcy law contains exceptions. For example, credit card debt connected to certain fraudulent conduct may be treated differently from ordinary consumer debt.
Chapter 13 works differently. Instead of immediately eliminating qualifying debts, you make payments under a court-approved repayment plan lasting three to five years. After successfully completing the plan, qualifying remaining debt can be discharged.
The U.S. Courts explains that the Chapter 13 discharge covers debts provided for by the plan, subject to specific exceptions.
What debtors should consider
Choosing bankruptcy is not only a matter of looking at the amount shown on your credit card statements. Some of the factors affecting your options include:
- Your income
- Property
- Household circumstances
- Other debts
- Previous bankruptcy filings
It is also important to understand the difference between eliminating your personal responsibility for a debt and removing a lien connected to property. A bankruptcy discharge can prevent a creditor from pursuing you personally for a qualifying debt, but it does not erase a valid lien against property.
For example, if a debt is secured by a valid lien, the lien may continue to affect the property even after the underlying personal obligation is discharged. This means bankruptcy may stop certain collection efforts without automatically giving you a clear title to property that remains subject to a valid lien.
If credit card payments have become unmanageable, it is vital to understand your options before making another payment or responding to a collection lawsuit. A legal professional qualified to handle bankruptcy issues can review your financial circumstances and explain whether bankruptcy may provide meaningful debt relief and what consequences you should consider before filing.
