Facing a lawsuit for unpaid credit card debts is stressful enough to wipe away your peace of mind and disrupt your life. The resulting garnishing of bank accounts and seizing of non-exempt assets can bring your financial life to a standstill or set it in a dooming downward spiral.
However, the Federal bankruptcy code provides a way out if you find yourself in such a situation. In the event your credit card issuer sues you for unpaid debts, as a Texas resident, you can declare bankruptcy to escape the lawsuit.
There are two types of bankruptcy under which you may be discharged against your credit card obligations, namely, chapter 7 and Chapter 13 bankruptcy. Your eligibility under either of the two depends on your financial situation, that is, debts versus assets and incomes. A bankruptcy attorney can help you establish which type of bankruptcy suits your financial situation.
Chapter 7 Bankruptcy
Generally, filing for Chapter 7 bankruptcy allows you to rid yourself of your credit card debts and start fresh financially. However, you have to pass a Means Test to qualify. Essentially, if your income is only enough to cater to your basic living expenses, then you stand a chance of qualifying for Chapter 7 bankruptcy. But if they establish that you can repay some of your debts – that is, your disposable income (residue income after deducting reasonable expenses) can cover some debts – then you don’t qualify for discharge under Chapter 7. However, you can still seek protection against a credit card lawsuit despite failing the Means Test by filing Chapter 13 bankruptcy.
Chapter 13 Bankruptcy
Chapter 13 allows debtors who fail the Means Test to table a convenient plan on how they will repay their debts. Under this bankruptcy, the court and trustee allow you to use part of your income to cover reasonable expenses, e.g., food, utilities, taxes, and mortgage repayments. The rest goes into debt repayment, which is spread over three to five years.
Advantages of a Chapter 7 Filing to Erase Credit Card Debt
- Grants you instant relief from all creditors’ debt collection efforts (automatic stay)
- Protects your exempt assets from foreclosure (car, house, retirement benefits, etc.)
- Takes a few months for the court to issue a total discharge from your credit card obligations (less than six months)
- Clears you to build your credit
Disadvantages of a Chapter 7 Filing to Erase Credit Card Debt
- Reflects on your credit card report for many years (up to 10 years)
- Doesn’t erase some debts like a student loan, alimony, unpaid taxes, and child support
- Doesn’t protect non-exempt assets
Bankruptcy Filing and Civil Lawsuit
Once you file bankruptcy, the court suspends all creditor debt collection efforts – phone calls, bank levies, lawsuits, etc. by issuing an automatic stay. An automatic stay gives you relief until the end of the case, which in most cases is ruled in your favor. In your civil case, you will want to file a Suggestion of Bankruptcy with the state court to provide the notice of the bankruptcy to all the parties in the lawsuit and this will immediately stop the lawsuit and make the lawsuit subject to your bankruptcy case. However, you need to cooperate by observing all the requirements provided by the court and trustee.
Upon the end of the case, you’ll either be discharged from your obligations entirely or granted a convenient repayment schedule depending on the type of bankruptcy you file. Nonetheless, you must surrender your non-exempt assets, if you have any, to cover some of the credit card debts.
What Happens If You Don’t Wish to File Bankruptcy
In case you decide against filing bankruptcy based on the disadvantages mentioned above, or for whatever reason, ensure you file a prompt answer to the lawsuit to avoid default judgments against you. A judgment empowers the creditor with tools, which they can use against you to collect the debt. That said, you should engage a skilled attorney to help you file an appropriate response that’s likely to represent your situation well for a swift and favorable resolution.
Declaring bankruptcy is an easy route to escape a credit card lawsuit and have a fresh financial start. Nonetheless, the process is not devoid of the complexities of legal procedures. Seeking the services of an experienced debt defense attorney can help you navigate the process a bit faster and guarantee a favorable ruling. Talk to us at Warren & Migliaccio L.L.P, and let us help you counter your credit card lawsuit with a prompt bankruptcy filing or an appropriate response.