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The Value of Bankruptcy When Credit Card Debt Is High

High credit card debt can be especially troublesome because so many credit cards charge a very high rate of interest. It can be as high as 20-30 percent on outstanding balances. When this is the case, and a person has maxed out their credit limit, they can go on making minimum payments and never or barely reduce the balance.

In this case, it can makes a lot of sense to file Chapter 13 bankruptcy, because in Chapter you do not pay any interest on unsecured debts, which includes credit card debt. You pay back the amount that is owed — the balance alone — when you file bankruptcy.

There are conditions, of course, for filing Chapter 13. One requirement is that you must have disposable income. For some people, this alone will be the deciding factor. If there’s no disposable income, there’s no point in pursuing the case. Many trustees have a rule of thumb that a bankruptcy plan payment to a court-appointed trustee must be a minimum of $100 per month. So right there you have the chance to do some simple math to see if Chapter 13 is a possibility for you. After your expenses, you need at least $100 per month left over to potentially qualify for Chapter 13.

For your future planning, it’s also good to keep in mind that a bankruptcy plan in Chapter 13 must usually be between 36 months minimum and 60 months maximum. There are some exceptions to this rule. For example, if you set up a 100 percent plan — which means that you are paying all of your creditors through the plan — then you can propose less than the minimum three-year plan. With all of these exceptions and qualifications, it’s best to consult with an attorney experienced with the many nuances of filing for bankruptcy. If you have questions, give us a call. It’s the first step toward creating a brighter future for yourself and your family.

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