When to Stop Paying Credit Cards and File for Bankruptcy

If you can't afford your credit card payments, bankruptcy might be a good option.

by:  , Attorney

Filing for bankruptcy is not a decision that should be taken lightly. If you are struggling with credit card debt, whether it is in your best interest to stop making payments and file for bankruptcy depends on:

  • whether you can afford to pay back the debt
  • whether you are being sued or harassed by debt collectors, and
  • the amount of nonexempt property you own.

Can You Afford to Pay Back Your Credit Card Debt?

When contemplating bankruptcy, the first thing to consider is whether you can afford to pay off your credit cards. If you make enough money to pay back your credit cards, you may not qualify for  Chapter 7  bankruptcy. If you have a lot of disposable income, you may be forced to pay back a significant portion of your credit card debt through a  Chapter 13 repayment plan.

In some cases, you may be able to negotiate with the credit card company and settle your debt for less than the full balance you owe. Alternatively, you may be able to lower your interest rate and combine your credit cards into a single loan through debt consolidation. However, if you are struggling financially and can’t afford to pay back your credit cards, bankruptcy may be the right choice for you.

Are You Being Sued or Harassed?

If you stop making payments on your credit cards, you will typically begin receiving numerous calls from the credit card company or its agents. In general, the more delinquent you are, the more frequent and harassing the calls will become. For most people, the constant harassment from debt collectors is what leads them to consider bankruptcy relief.

Depending on your income and the amount of debt you owe, the credit card company (or a debt collection agency) may decide that it is worthwhile to bring a lawsuit against you to collect its debt. If the credit card company obtains a judgment against you in court, it may be able to garnish your wages or go after your assets to satisfy the debt. If you are facing a lawsuit or the credit card company is not willing to work with you, it may be time to consider your options under bankruptcy law.

How Much Property Do You Own?

In Chapter 7 bankruptcy, the  bankruptcy trustee  can sell your nonexempt assets to pay back your creditors. This means that if you own a lot of property, filing for Chapter 7 bankruptcy may not be in your best interest. If you file for Chapter 13 bankruptcy, you can keep all of your property. But keep in mind that you have to pay your unsecured creditors (like credit card companies) an amount equal to the value of your nonexempt assets.

Bankruptcy exemptions vary from state to state. As a result, review your state’s exemption laws and consider the amount of property you own to determine whether filing for bankruptcy makes sense for you.

Should You Stop Paying Credit Cards Before Filing for Bankruptcy?

In most cases, if you have already decided to file for bankruptcy, continuing to make credit card payments is a waste of money. But if you are still undecided about bankruptcy or may not file your case for a long time, stopping your credit card payments can subject you to collection calls and lawsuits or cause unnecessary damage to your credit.

To learn more, see  Should I Stop Paying Creditors If I'm Going to File for Bankruptcy?

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