How to Write Off Credit Card Debt Legally


Credit cards are a very useful financial tool. A credit card can be used wisely or it can help lead to financial ruin. If you find yourself with serious credit card debt that you are unable to repay, you have several options to legally write off the debt.

  • Borrow equity from your home to pay off the debt. Equity is the value you have in your home after the mortgage and any liens are deducted. You can tap into the equity in your home directly by selling the house. You may also take out a second mortgage that is based on the value of your home. You can then use these funds to pay off credit card debt. Doing so has a financial advantage because mortgage interest payments are deductible from your tax returns. Credit card interest is not. In effect you are transferring your debt from one form to another, more tax advantageous form.

  • Borrow money from your 401K. A 401K is a means of saving money for retirement. You can tap into the funds you have accumulated in your account in order to pay down credit card debt. Be aware that certain penalties may apply if you are a certain age. Consult with your company's human resources representative or fund manager first to make sure you understand any financial consequences from this action.

  • Negotiate with the credit card company. Some companies are open to negotiation. They may be willing to lower the amount of interest you are paying. Company officials may also be willing to reduce the balance on your credit cards. Consider hiring a lawyer for this purpose. The lawyer may be able to negotiate on your behalf. Having your debt reduced may be more than worth the cost of his fees.

  • File for chapter seven bankruptcy. Chapter 7 bankruptcy is a form of legal protection against debt. When you file for Chapter 7 bankruptcy you agree to sell off all your assets to meet any financial obligations. A Chapter 7 bankruptcy will legally write off any credit card debt you may have. Look closely at this option. Make sure you meet all financial criteria. You may not be able to apply if your income exceeds a certain sum. This amount varies by state so consult with a tax lawyer first.

  • File for Chapter 13 bankruptcy. Chapter 13 bankruptcy is a means of restructuring debt over a period of time which is typically three to five years. During this time you cannot be charged interest on existing credit card debt provided you meet all required payments. At the end of the bankruptcy period all your credit card debt will be discharged.

Tips & Warnings

  • Never lie to your lawyer about your finances.

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