Chapter 13 Bankruptcy for Credit Card Debt

Credit card debt can quickly become overwhelming, especially when high-interest rates and late fees start piling up. If you’re struggling to keep up with credit card payments, Chapter 13 bankruptcy may offer a way to regain control of your finances. Filing for Chapter 13 can help you reduce or even eliminate your credit card debt over time, without sacrificing your property.

At J. Singer Law Group PLLC, we help individuals who are burdened by debt explore solutions like Chapter 13 bankruptcy. In this guide, we’ll walk you through how Chapter 13 bankruptcy can address credit card debt, its benefits, and what the process involves.

What is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy, also known as a wage earner’s plan, allows individuals with regular income to create a repayment plan to pay back all or part of their debts over three to five years. Unlike Chapter 7, which may involve liquidating assets, Chapter 13 enables you to keep your property while making structured payments to settle your debts. For those with substantial credit card debt, Chapter 13 can be a powerful tool for achieving long-term financial stability.

How Chapter 13 Can Address Credit Card Debt

Credit card debt is generally considered unsecured debt because it’s not tied to any specific property. Under Chapter 13, unsecured debts like credit card balances can be included in the repayment plan. Depending on your income and expenses, you may end up paying only a portion of your credit card debt, with the remaining balance potentially discharged at the end of your plan.

The Benefits of Chapter 13 Bankruptcy for Credit Card Debt

If you’re drowning in credit card debt, Chapter 13 bankruptcy offers several unique benefits that can help you get back on track financially:

1. Reduction of Total Debt

One of the primary advantages of Chapter 13 bankruptcy is that you may only need to pay a portion of your credit card debt. Your monthly payments are based on your disposable income and prioritized expenses, meaning that you’re only required to pay what you can reasonably afford. Any remaining eligible credit card debt at the end of your repayment period may be discharged, relieving you from the obligation to pay it.

2. Halting Interest and Fees

Once you file for Chapter 13, the court’s automatic stay goes into effect, immediately stopping creditors from charging additional interest and fees on your credit card debt. This means that the debt included in your repayment plan doesn’t continue to grow, allowing you to make progress toward eliminating it.

3. Protection from Creditors

Chapter 13 bankruptcy also protects you from creditor harassment, lawsuits, and wage garnishments. Credit card companies and collection agencies must cease all collection efforts as soon as you file for Chapter 13, giving you relief from the pressure and stress of constant debt collection calls.

4. Structured Repayment Plan

Chapter 13 provides a structured repayment plan that’s designed to fit within your budget. Rather than making unpredictable or fluctuating payments on multiple credit cards, you’ll make one consolidated payment each month, which is then distributed to your creditors by a bankruptcy trustee.

5. Keeping Your Property

Unlike Chapter 7 bankruptcy, Chapter 13 allows you to keep your assets, including your home, car, and personal belongings. For individuals with valuable property they want to protect, Chapter 13 offers a way to address credit card debt without the risk of losing assets.

How Chapter 13 Bankruptcy Works for Credit Card Debt

Filing for Chapter 13 involves several key steps, from preparing and filing a petition to creating a repayment plan and working with the court-appointed trustee. Here’s an overview of how the process addresses credit card debt:

1. Filing the Chapter 13 Petition

The first step is filing a Chapter 13 petition with the bankruptcy court. This petition includes detailed information about your debts, assets, income, and expenses. It’s important to be thorough and accurate, as this information will determine how much you’ll be required to repay under your plan.

2. Automatic Stay

Once you file for Chapter 13, the court issues an automatic stay, which halts all collection actions by creditors. This means that credit card companies must immediately stop attempts to collect payments, file lawsuits, or garnish your wages. The automatic stay provides immediate relief, allowing you to focus on your repayment plan.

3. Creating a Repayment Plan

Your attorney will work with you to create a repayment plan that outlines how much you’ll pay each month and how the payments will be distributed among your creditors. Unsecured debts, including credit card balances, are typically given lower priority than secured and priority debts, meaning that you may only have to pay back a portion of your credit card debt.

The length of your repayment plan depends on your income. If your income is below the state median, your plan will typically last three years; if it’s above the median, it will last five years.

4. Court Confirmation of the Plan

Your repayment plan must be approved by the court at a confirmation hearing. Creditors have the opportunity to raise objections, but once the plan is confirmed, both you and your creditors are legally bound by its terms.

5. Making Payments

Once your plan is approved, you’ll begin making monthly payments to the bankruptcy trustee, who will distribute the funds to your creditors according to the plan. These payments are typically more affordable than your original credit card payments and remain consistent, allowing you to budget more effectively.

6. Discharge of Remaining Debt

At the end of your repayment period, any remaining eligible credit card debt that was included in your plan is discharged, meaning you are no longer responsible for paying it. This discharge provides a fresh start, freeing you from lingering debt and allowing you to rebuild your financial life.

Qualifications for Chapter 13 Bankruptcy

To qualify for Chapter 13 bankruptcy, you must meet specific eligibility requirements. Here’s what’s typically required:

1. Regular Income

To successfully complete a Chapter 13 repayment plan, you’ll need to demonstrate that you have a stable income that allows you to make regular monthly payments. This income can come from various sources, such as wages, self-employment, Social Security, or other reliable income streams.

2. Debt Limits

Chapter 13 bankruptcy has debt limits for unsecured and secured debts. As of 2024, your total unsecured debts (including credit card balances) must be less than $478,975, and your total secured debts must be less than $1,596,875.

3. Up-to-Date Tax Filings

You must have filed federal and state income tax returns for the past four years before filing for Chapter 13. If you haven’t filed your taxes, you’ll need to do so before your case can proceed.

Potential Drawbacks of Chapter 13 for Credit Card Debt

While Chapter 13 has many benefits, it’s essential to understand the potential drawbacks as well:

1. Length of the Repayment Plan

Chapter 13 requires a commitment to a multi-year repayment plan, which can be challenging for some individuals. You’ll need to stick to a strict budget for three to five years to complete the plan successfully.

2. Impact on Credit Score

While Chapter 13 bankruptcy may impact your credit score, many individuals find that their credit begins to improve after completing the repayment plan. Additionally, taking control of your debt through bankruptcy can be more beneficial than continuing to struggle with unmanageable credit card debt.

3. Repayment of a Portion of Your Debt

Although Chapter 13 may reduce your credit card debt, you may still be required to repay a portion of it. The amount you’ll repay depends on your income and expenses, but many individuals find that the relief from high-interest credit card payments outweighs the need to repay a percentage of the debt.

How J. Singer Law Group PLLC Can Help with Chapter 13 for Credit Card Debt

Filing for Chapter 13 bankruptcy can be a complex process, but the experienced attorneys at J. Singer Law Group PLLC are here to guide you every step of the way. Our team can help you:

• Assess Your Options: We’ll evaluate your financial situation and help you determine whether Chapter 13 is the best solution for your credit card debt.
• Create a Feasible Repayment Plan: We’ll work with you to develop a plan that fits your budget and meets court requirements, ensuring you can manage your payments and keep your assets.
• Handle Court Proceedings: Our attorneys will represent you in court and work to ensure that your plan is confirmed without unnecessary delays.
• Provide Ongoing Support: Throughout the repayment process, we’ll be here to answer your questions, address concerns, and help you stay on track with your plan.

Conclusion: Is Chapter 13 Bankruptcy Right for Your Credit Card Debt?

If you’re overwhelmed by credit card debt, Chapter 13 bankruptcy offers a structured path to financial relief. With Chapter 13, you can reduce or eliminate your credit card debt over time, keep your property, and regain control of your financial future.

At J. Singer Law Group PLLC, we’re dedicated to helping individuals achieve lasting solutions to their debt problems. Contact us today for a free consultation, and let us help you explore whether Chapter 13 bankruptcy is the right option for you.