You have several options if you are seriously delinquent on credit card payments. One option is to negotiate a settlement with your card company, or, if that is not possible, you can file for Chapter 13 bankruptcy. However, filing for bankruptcy should be viewed as a last resort. With an out-of-court settlement, you avoid having to make financial disclosures and save yourself court and legal fees.
Card Settlement
As an unsecured lender, your credit card company may be willing to work with you if you are late on payments. You should can contact your credit card company immediately to explain your financial situation. You can attempt to make an arrangement to reduce the rate of interest. Doing so will help lower you monthly bill and allow you to pay down more of the principal balance.
Chapter 13
A Chapter 13 bankruptcy filing is essentially a payoff plan between you and your creditors. It is similar to a consolidation loan. The process begins with submitting a list of your financial obligations, tax filings, income and expenditures. You meet with your creditors to develop a payment plan and schedule, which must be approved by the court. Once approved, you will be held to the requirements of the plan. A court-appointed trustee receives your payment and is responsible for distributing it among your creditors. The cost to file Chapter 13 is $274 as of 2010.
Objections
Once you file for Chapter 13, you are given an order of protection from your credit card company from pursing collections action. However, there is no guarantee you will be granted protection from all your creditors. Your credit card company may attempt to block having its debt included in the petition if it suspects card abuse on your part prior to filing. Your credit card company can pursue collections action against you if the court rules in its favor.
Using a Debt Settlement Service
You may want to consider using a debt settlement service to negotiate with your credit card company on your behalf. Doing so may help reduce the principal balance, allowing you to pay off your credit card quicker. If you don't qualify for debt settlement, you may choose credit counseling, which may lead to an interest rate reduction on your credit cards. Most third-party negotiators offer both settlement and credit counseling services. The fees charged vary depending on the state in which you live. Fees are collected when your debt has been settled.
Credit Reporting
If you settle with your credit card company for less than the amount owed, the information will show as "Settled" in your credit report for seven years, and that will count against you with other creditors. A Chapter 13 filing also stays on your credit report for seven years; however, potential creditors are likely to view a bankruptcy filing more negatively than resolving your debts out-of-court.
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