Excessive debt is one of the major reasons why people file for bankruptcy.
In many cases, the excessive debt is the result of paying for necessities
such as medical bills and vehicle repairs. While there are some exceptions,
most credit card debt can be discharged when a person successfully completes
Chapter 13 or
Chapter 7 bankruptcy.
Chapter 7 Bankruptcy and Credit Card Debt
When you file for Chapter 7, most of your debt can be discharged. However,
Chapter 7 requires you to give up all of your non-exempt property. The
trustee will sell the property and use the money to pay off creditors.
Most credit card debt is viewed as non-priority, unsecured debt, so it's
discharged with Chapter 7. Tax debts and child support are two examples
of priority debts, which cannot be discharged with Chapter 7 bankruptcy.
Although it doesn't make sense in most situations, it's possible
to file for Chapter 7 and reaffirm all debts except for credit card debt.
In this situation, an individual is liable for reaffirmed debts when the
bankruptcy is finished.
Chapter 13 Bankruptcy and Credit Card Debt
Depending on your situation, Chapter 13 bankruptcy might make sense. This
type of bankruptcy involves partially or fully repaying some creditors.
It involves a specialized payment plan, which might be anywhere from three
to five years. In most cases, a portion of unsecured debt is paid with
Chapter 13 bankruptcy. Credit cards are great examples of unsecured debt.
When determining how much money you'll pay, several factors are considered.
A major factor is the amount of disposable income you make. The majority
of individuals who file for Chapter 13 bankruptcy must only pay a tiny
percentage of their unsecured debt. When the repayment period is over,
remaining credit card balances are discharged.
When Creditors Can Challenge the Discharge of Your Credit Card Debt
While the discharge process is usually the same for most people, there
are some exceptions. If a person ends up with credit card debt because
he or she engaged in fraudulent activities, the debt cannot be discharged.
However, the creditor must challenge the debt discharge process. If the
creditor is successful, the court will make the individual pay the credit
card debt. Common Examples of Credit Card Fraud:
- Making a false statement on a credit card application.
- Charging over $650 with any creditor for luxury services or goods within
90 days before filing for bankruptcy. In this situation, it's presumed
that your intent was fraudulent.
- Getting a cash advance that totaled more than $925 within 70 days of filing
Although it's quite rare, some creditors take security interest in
property. This information is usually disclosed in the agreement. In this
situation, the credit card debt is actually secured.
Can I Be Sued After Bankruptcy?
No. One of the benefits of filing for bankruptcy is that it prevents creditors
from taking you to court. It also prevents creditors from engaging in
further collection attempts. After filing bankruptcy, the
automatic stay prevents credit card companies from calling you, sending letters and engaging
in similar activities.