When a person incurs substantial debts on his credit cards, he may need to take drastic action to get his financial life back on track. Two of the most extreme solutions that the person can choose involve declaring personal bankruptcy and walking away from the credit cards. Neither action is particularly beneficial, but only bankruptcy will stem the financial and credit damage being done to the debtor.
Bankruptcy Advantages
The main advantage of bankruptcy is that it allows a person mired in debt to restart his financial life. This happens because Chapter 7 bankruptcy, sometimes called liquidation bankruptcy, will cause a number of debts on the person's record to be wiped out. This can include many credit card debts. So, the person will be free to start rebuilding his credit without having to worry about repaying old debts.
Bankruptcy Disadvantages
Only certain people are eligible for bankruptcy. A person who wishes to declare bankruptcy will be required to go before a judge, who will decide whether the person meets the legal criteria to file. A person may not be eligible for Chapter 7, but only for Chapter 13 under which debts must be repaid through a special payment plan. In addition, the person's credit -- already shaky -- will be further damaged by filing bankruptcy. Even though a Chapter 7 bankruptcy remains on a credit report for up to 10 years and a Chapter 13 remains for seven years, there are ways to begin rebuilding credit during this time.
Advantages of Walking Away
The main advantage to walking away from a credit card is that the debtor will not have the opportunity to take out new loans against the card. If the person has a problem with overspending, closing an account or waiting for a company to cancel it can eliminate a means of digging himself deeper into debt. However, walking away from an account doesn't mean that the person will no longer have to pay the debt.
Disadvantages of Walking Away
A person may be through with a credit card, but the credit card might not be through with him. Even if a person cancels a credit card, he is still responsible for paying the outstanding balance. In addition, the person will also have to pay any fees or interest payments assessed on his principal. If he no longer uses the card, the debt can continue to snowball to many times its size.
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