Credit card debt is a problem, both for the nation and for individuals. According to credit reporting agency Experian, Americans were carrying about $834 billion in credit card debt as of the end of 2018, and that number continues to grow.
The average U.S. household has less than $10,000 in credit card debt, and even at that level, the burden can cripple a budget–especially if the card holder falls behind and late fees are added to the already-significant monthly interest. Unsurprisingly, as credit card debt grows larger, it often becomes even more unmanageable.
How Common is Large Credit Card Debt?
In some U.S. cities, more than 20% of local card holders are carrying more than $10,000 in debt, and a small but significant percentage with more than $50,000 in credit card balances. Locally, we fare a bit better: credit card balances tend to be highest in the Northeast. Still, 13.2% of credit card holders in Birmingham, Alabama have five-figure balances, along with 12.9% in Jackson, Mississippi and Knoxville, Tennessee.
In these three cities, less than .5% of credit card users are carrying balances of more than $50,000. Still, that potentially means thousands of people in each of these metropolitan areas are struggling with tens of thousands of dollars in credit card debt. And, that debt may feel insurmountable. $100,000 or more in credit card debt may even sound too big for bankruptcy.
Robert Reese, an attorney with the Bond & Botes office in Birmingham, Alabama says that he regularly consults with consumers who have credit card balances far in excess of $10,000.00.
Reese emphasizes that understanding your options is the first step toward regaining control.
Large Credit Card Debt and Bankruptcy
Credit card debt is handled differently in Chapter 7 bankruptcy than in Chapter 13 bankruptcy, and eligibility differs, as well. An experienced local bankruptcy lawyer is your best source for assessment of your individual circumstances. The overview below will give you a general idea of the pros, cons, benefits and limitations of pursuing each type of bankruptcy as a means of managing large credit card debt.
Chapter 7 Bankruptcy
In a successful Chapter 7 case, it is usually possible to eliminate credit card debt entirely. There is no cap on the amount of credit card debt that can be discharged in a Chapter 7 case. In other words, it is possible to discharge $100,000 in credit card debt–or even more–in a Chapter 7 bankruptcy. But, that doesn’t mean it’s a workable option for everyone. There are two key considerations for people with large credit card debt who are thinking about Chapter 7 bankruptcy:
Chapter 7 bankruptcy filers must “income qualify.”
For those with income above the state median, a means test is applied to determine whether or not the individual or couple should be able to pay at least some of their debt. This requirement was adopted in 2005 with the purported purpose of reducing “abuse” of the bankruptcy system.
The test involves comparing average monthly income with allowable expenses and calculating anticipated disposable income–the money left over after paying those allowed expenses–for the next five years. Determining eligibility if you are above the median income can be complicated, and it’s best to have an experienced bankruptcy lawyer assist with that assessment and explain your options.
Non-exempt property may be sold in Chapter 7.
Chapter 7 filers seeking to discharge large amounts of credit card debt may also face an obstacle if they own too much property. In a Chapter 7 bankruptcy case, some property may be liquidated (sold) by the bankruptcy trustee to pay creditors. For most Chapter 7 filers, this never becomes an issue, because bankruptcy exemptions protect all or most of their property. But those who have significant assets that are not exempt will have to make a choice: proceed with Chapter 7 and give up those non-exempt assets to make partial payment to creditors, or opt not to file Chapter 7 bankruptcy.
Those who decide not to file in order to preserve their non-exempt assets may be able to file under Chapter 13.
Chapter 13 Bankruptcy
In a Chapter 13 bankruptcy, some or all unsecured debts are paid as part of a three to five year repayment plan. That may sound daunting if you have $100,000 in credit card debt or some other large unsecured debt. But, Chapter 13 plan payments are dependent on your income. Some people who file for Chapter 13 bankruptcy pay only a small fraction of their unsecured debts. Others pay none at all. And, when the plan is successfully completed, remaining unsecured debt may be discharged.
Unlike Chapter 7 bankruptcy, Chapter 13 bankruptcy has some limitations on debt. The current cap on unsecured debt is $419,275. That includes not only credit card debt, but other unsecured debt such as medical bills and unsecured loans.
For those who are eligible, a Chapter 13 plan allows for the repayment of past-due balances on secured debts and perhaps some or all unsecured debts over time. The Chapter 13 filer makes a monthly payment to the bankruptcy trustee, who distributes funds to creditors according to the plan. As long as the debtor is fulfilling his or her obligations under the plan, those creditors can’t take any further collection action.
What is the Best Way to Get Rid of $100,000 in Credit Card Debt?
The best way to manage large credit card debt depends on a variety of factors, including your income, your other debt, and your assets. Before you take any action, schedule a free consultation with one of the bankruptcy lawyers at Bond & Botes. We have decades of experience helping people get out of debt and can help you determine the best way forward for you.
Call 877-581-3396 right now or fill out the contact form on this site to get started.
Brad Botes is a principal of each of the Bond & Botes Law Offices throughout Alabama, Mississippi, and Tennessee. He holds a Bachelor of Science from the University of North Alabama, and a Juris Doctorate from Cumberland School of Law at Samford University. He and his team of bankruptcy lawyers have spent over 30 years guiding people through financial challenges. Read his full bio here.