When people file for bankruptcy, overspending on credit cards is one potential reason they may cite. They have simply spent beyond their means, or perhaps the high interest rates have caused their debt to increase. Even though they are paying the monthly minimum on the card, their total debt is just growing and there is no way for them to pay off the entire balance.
In this sense, credit cards can lead to a bankruptcy filing. Overspending is often noted along with things like job loss or high medical bills as one of the top reasons for bankruptcy. A young person may have struggled to budget appropriately, or someone may have experienced an emergency and thought they had no choice but to charge things to a card – knowing all along that they would not be able to pay it off themselves.
Rebuilding your credit
But that does not mean that credit cards should always be avoided. After bankruptcy, they can actually be very helpful.
Once the bankruptcy filing has concluded, an individual shifts their focus to rebuilding their credit score. They can do this by using a secured credit card. They supply a down payment, so there is no risk to the lender. But if they charge purchases to that card and pay them off on time, it helps rebuild their credit score so that they can qualify for mortgage loans, car loans and other lines of credit.
Understanding how to use credit cards is very important when considering a bankruptcy filing. If you are in this position, take the time to carefully consider your legal options.
