If you cannot make payment on your credit card you have a choice bankruptcy vs. charge off. Charge off is when the creditor writes off the non-payment. Bankruptcy is when the debtor files for court protection and may or may not retain possession of any assets. Bankruptcy filed under Chapter 7 totally erases the debt and Chapter 13 reorganizes the debt so the payments are lower and for a limited amount of time. There are advantages and disadvantages to either option.
There are benefits of bankruptcy when you have several creditors vying for payment and you are facing a charge off of the account. Chapter 13 will allow you to pay off the debt and a lot of times the late charges and the fees will be waived by the court. Bankruptcy can also keep you from being sued by a creditor and the effects of a judgment won against you. Even though bankruptcy will affect your credit history for several years, the damage is less than that of a charge-off which will show numerous entries for late payments.
When you file bankruptcy the proceedings can last up to five years and the negative information will stay on your credit report for up to ten years. The fact that you chose bankruptcy shows that you made a voluntary decision to take steps to eliminate or manage your debt. Your debt will be reorganized by the court so you can make the payments, or you will have your debt eliminated by the court and you will surrender your assets. In Chapter 7 bankruptcy you can lose even the assets that you have kept current on the payment. Let’s continue will our exploration of bankruptcy vs. charge offs.
A charge-off by the creditor is not an end to the attempt to collect the debt. The creditor may sell your debt to a collection agency that will continue the collection efforts. The agency may file a civil lawsuit to collect the debt. Unless the debt is really high, the original creditor probably won’t pursue a lawsuit. But you have to decide whether or not you are willing to take a risk that you won’t be sued. If you lose the lawsuit, you face losing your assets such as your car, your home, or your wages. With a charge-off your loss is to your credit score and the negative impact on your credit report.
When you have not paid your credit card and the payment is over 180 days overdue the creditor will write-off the balance. This will remain on your credit report for up to seven years. Since this occurs only with debt that is unsecured, or has no collateral, you do not run the risk of losing any assets. However, if the debt is sold and a credit collection agency files suit and obtains a judgment then you may have your assets seized. You must determine which option, bankruptcy vs. charge offs, will prove most advantageous to your financial situation.