I often get told by clients that they are going to file bankruptcy. When I inquire why and how much they owe, 99.9% of the time it is due to credit card default. Credit card default always happens because of two reasons:
1. Insufficient streams of income that cause an inability to pay bills due to an interruption in cash flow
2. Buying things that you cannot afford and paying upwards of three times the price of the item by carrying a compound interest balance
Invariably, people painfully think that their only solution to stop the harassing collector calls and end the embarrassment and pain and suffering caused by derogatory credit is to file bankruptcy on amounts that generally equate to less than one year's income. Most people are not aware of the change in bankruptcy laws several years ago that now eliminates the ability for most people to file a Chapter 7 bankruptcy (the kind that wipes the slate clean) and now requires that they file a Chapter 13 bankruptcy (otherwise known as a wage earner repayment plan).
What they don't know is that you should never file bankruptcy over defaulted credit card payments, charge offs, collections, etc. Bankruptcy should really be reserved for elimination of litigation (lawsuits that can potentially create judgments and bank account or wage garnishments) and attach future income.
In most cases, credit card charge offs and collection accounts can be completely removed from the credit report and the amount legally eliminated following a few simple legal steps.
So, if you are contemplating bankruptcy over charged off credit cards thinking that there is going to be some financial or credit benefit to you, think again. Don't do it.
Follow the simple steps for debt validation, debt investigation, statutes of limitations, collection agency licensing and small claims court suits to see which method or combination of methods can legally get the items removed from your credit report and end the financial obligation. This should be done before you consider other alternatives such as credit card debt settlement.