Chapter 7 bankruptcy allows qualifying debt such as credit card debt to be discharged. Once a discharge is granted the creditor can no longer pursue payment from the debtor. In most cases, the debtor is not required to pay income tax on debt that has been discharged and the debt is no longer enforceable against you.
Credit card debt is an example of unsecured debt; signature loans and medical bills are also under this category. Unsecured debt usually is not secured with property such as a home loan or vehicle loan. So when the bankruptcy court grants a discharge of the debt, the creditor receives nothing in return. When a discharge is being sought, it comes down to whether or not the debt was incurred honestly. This ensures the debtor receives an honest fresh start that many often seek when this chapter is filed.
In some cases, the debtor may not receive a discharge if the debt wasn’t incurred honestly. This could happen if you fail to report all credit card accounts or even continue using credit cards while filing your petition. If you go on spending sprees before filing and purchase luxury items or take out large cash advances from the card just prior to filing, the court may not grant a discharge.
Getting credit card debt discharged in Chapter 7 bankruptcy is often fairly simple. As long as you are honest with your attorney about your finances and report all outstanding debt, this may make your case easier for the court to review.