What Happens to Your Credit Cards During Bankruptcy in Ohio?
When facing financial difficulties, bankruptcy can often seem like a viable option for relief. If you're a resident in Ohio and are considering filing for bankruptcy, you may wonder about the implications this decision has on your credit cards. Understanding what happens to your credit cards during bankruptcy can help you make informed choices moving forward.
In Ohio, like in other states, there are two common types of personal bankruptcy: Chapter 7 and Chapter 13. Each type has different impacts on your credit cards.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is often referred to as "liquidation" bankruptcy. When you file for Chapter 7, most of your unsecured debts, including credit card debts, can be discharged. This means you are no longer responsible for paying them back. However, there are some important considerations:
- Credit Card Accounts Closed: Once you file for Chapter 7, the credit card company may close your accounts, which is typical because the company cannot collect any owed amounts after the discharge.
- Impact on Credit Score: Filing for bankruptcy will have a significant negative impact on your credit score. Your credit card accounts will show as "included in bankruptcy," which can reduce your score for several years.
- Exceptions: If you have collateral attached to your credit, like a secured credit card, you may need to continue making payments to retain that asset.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is a reorganization bankruptcy that requires you to propose a repayment plan to pay back all or part of your debts over three to five years.
- Credit Card Accounts May Remain Open: Unlike Chapter 7, you may be able to keep your credit cards open during Chapter 13, especially if you can continue making payments. However, most creditors will likely close the accounts once they see filing activity.
- Repayment Plans: You will have a structured plan to repay your credit card debts, which can help with managing your finances more effectively. However, it’s essential to stay diligent during the repayment term.
- Credit Score Impact: Your credit score will still be affected, but not as severely as with Chapter 7. You will have the chance to rebuild your credit score during the repayment period.
Post-Bankruptcy Options
Regardless of the type of bankruptcy you file for, rebuilding your credit after the process is crucial. Many former bankruptcy filers find that securing a secured credit card provides a pathway to rebuilding their credit score. These cards typically require a deposit that serves as your credit limit, thus minimizing the risk for lenders.
Additionally, keeping up with payments on any remaining debts and practicing good credit habits can help in restoring your creditworthiness over time.
Conclusion
In conclusion, your credit cards can play a significant role during the bankruptcy process in Ohio. Whether you file for Chapter 7 or Chapter 13, understand the impacts on your accounts and credit score. With proper guidance and a solid plan to rebuild your credit, it is possible to recover from the effects of bankruptcy and work towards a healthier financial future.