Credit cards offer a convenient way to purchase goods and services without carrying cash, but irresponsible spending with a credit card can lead to high balances that are difficult to pay off. It can take years to pay off credit cards even if you never miss a payment. The government offers resources to help educate people about debt management options and offers bankruptcy as an option for consumers that cannot get out of debt themselves.
Debt and Credit Management Information
The government, in general, does not take a direct role in helping people get out of credit card debt or other types of debt unless a debtor decides to file for bankruptcy. It is up to a debtor to deal with private debts themselves, through budgeting, credit counseling services and other nongovernment debt services. The government does, however, provide a wealth of information that consumers can use to help determine their best options for overcoming debt. For example, the Federal Trade Commission (FTC) has websites dedicated to facts for consumers that list ways to combat debt without resorting to bankruptcy (see Resources).
Bankruptcy Basics
When an individual or business decides to declare bankruptcy, the government becomes directly involved in the debt management process. The FTC states that bankruptcy is often considered an option of last resort, because it can have a large negative impact on your credit score that can last for many years, making it difficult to get credit and loans in the future. Bankruptcy does, however, have the potential to discharge (eliminate) credit card debt and other types of debts like personal loans.
Common Bankruptcy Types for Individuals
When you file for bankruptcy, you must choose between several chapters of the bankruptcy code that each have different impacts on debts. Chapter 7 bankruptcy filing involves a discharge of debts and a liquidation of debtor assets; the proceeds of liquidation are given to creditors. Chapter 7 bankruptcy is common among people with few resources and high levels of debt. Chapter 13 bankruptcy is an option available to debtors with a regular income, which allows the debtor to avoid liquidation and pay back debts according to a court-approved plan. Chapter 12 is a section available to family farmers and fishermen that works similarly to Chapter 13 and allows the filer to continue to operate his business during the repayment process.
Considerations
If you decide to file for bankruptcy under Chapter 7 to have credit card debt discharged, you may not actually have to liquidate any of your possessions. The U.S. Courts website states that the government makes allowances for assets up to certain minimum levels and that many Chapter 7 cases are "no-asset cases," meaning all assets the debtor owns are exempt from liquidation.
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