Credit cards can be so effortless to obtain and use, but it's so easy to lose control of those little plastic cards. When you are unable to pay the minimums and are using one card to pay those payments using cash advances, you might be in serious trouble. Many people find that their financial situation has become so bad that they have little choice but to declare bankruptcy. When you add up your total debt load and realize that you will never be able to pay it off given your income, a chapter 7 filing might be in your future. The way bankruptcy treats credit has both positive and cautionary facets, so read on to learn more.
The Positive Effect on Credit Card Debt
In almost all cases, your entire credit card debt balance can be completely eliminated in a single moment. Once you file your chapter 7 bankruptcy case in federal court, you no longer need to pay any credit card bills or payments. The positive effect on your budget can be dramatic since you will automatically free up more funds to pay other bills, get caught up on debts that may not be included in your filing, and pay for the basic necessities of life.
What to Know About Credit Card Misuse
When it comes to problems with a bankruptcy filing, the misuse of credit cards prior to a filing are common. Once you file for your chapter 7 bankruptcy, all credit card accounts listed on the forms are null and void and cannot ever be used again. Some people, knowing they are about to wipe out their credit card debt, go wild and use up every bit of their available credit before they file. There are also those that have no idea about the rules dealing with credit card use prior to a filing and accidentally misuse their card.
Using Credit Cards Wisely Prior to a Filing
It should be noted that the bankruptcy codes do not prevent consumers from using their credit cards entirely. As long as you stay within the guidelines, you can use your cards right up to the moment you complete your bankruptcy paperwork and perform your federal filing. The below guidelines cover frivolous use of cards and not using a card to meet your basic life needs or for an emergency need. If any of the below occur, and you can show that the use was not frivolous, you can use your cards as needed:
- For food and housing
- To pay utility bills, car payments, mortgage payments
- To have your car repaired so that you can go to work or ferry children
- To replace an important appliance that was beyond repair, such as a stove or washing machine
And similar uses.
Misuse of Credit Cards
The rules about the use of credit cards state that you cannot charge more than $675 on any card or combo of cards in the 90 days before you file. Additionally, you cannot take a cash advance of more than $950 in the 70 day period before you file.
To learn more about the use of credit cards prior to your filing, speak to your bankruptcy attorney.