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Credit Card Bankruptcy

Credit card bankruptcy refers to debtors who have filed for bankruptcy protection due to the inability to repay credit card debt. Experts claim approximately 35-percent of bankruptcy filings are caused by overwhelming credit card debt. Nearly two-thirds of Americans admit their main reason for filing bankruptcy was due to poor money management and misuse of credit cards.

The staggering amount of credit card bankruptcy filings caused Congress to enact new bankruptcy laws in 2005. President Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act in order to reduce credit card bankruptcy filings

BAPCPA stipulates that all debtors must repay a portion of their debt. Additionally, debtors are now required to participate in credit counseling prior to bankruptcy confirmation. Due to the stringent directives of BAPCPA, most debtors are now required to file Chapter 13 to establish a repayment plan.

Chapter 13 bankruptcy allows debtors to retain their assets. However, a large percentage of disposable income must be paid toward the repayment plan. In most cases, Chapter 13 repayment plans last for three to five years. This can place heavy financial restrictions on the debtor and eventually cause them to fail out of bankruptcy.

When debtors fail out of bankruptcy, creditors can request the court dismiss Chapter 13 and require the debtor to repay the debt in full. Depending on the circumstances, the bankruptcy judge can either dismiss the case or allow the debtor to file Chapter 7. If the case is dismissed, the debtor loses all protection from the bankruptcy court.

If the bankruptcy is discharged through Chapter 7, bankruptcy remains on the debtor's credit history for 10 years. Bankruptcy affects the debtor's ability to obtain credit. If debtors are able to obtain lending, they generally pay a very high interest rate.

Bankruptcy can also have an effect on insurance premiums, utility deposits, cost of automobile loans and might interfere with the ability to rent a home. Obtaining a mortgage after bankruptcy is nearly impossible for at least five years.

Before hiring a bankruptcy attorney, consider looking into bankruptcy alternatives such as debt consolidation, credit counseling and budgeting. We invite you to learn more about bankruptcy and options to get out of debt in our all-inclusive bankruptcy and personal money management article library.

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Published on November 29, 2008 at 03:47 AM

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