Credit Cards & Bankruptcy
Credit Card Debt Elimination
Many consumers have relied on credit cards to help them through these difficult financial times. As the economic downturn continues, filing for bankruptcy due to overwhelming credit card debt is becoming more and more common.
There are some services, like debt settlement, that claim to help you get control of your credit card debt. However, only bankruptcy can eliminate credit card debt completely while offering the protection of the automatic stay.
Bankruptcy Automatic Stay: Protection from Credit Card Companies
Bankruptcy provides protection from credit card companies. Once you file for bankruptcy, you are protected by the "automatic stay." The automatic stay is a court order that prohibits claims against you, your property and your debts from the moment you file bankruptcy until your case is complete. This means that credit card companies may not make any further attempts to collect from you. They can't call you, send you bills or sue you.
If a credit card company or any other creditor contacts you or makes any attempt to collect from you while you’re protected by the automatic stay or after your debt is discharged, we may sue them on your behalf.
Credit Card Debt & Chapter 7 Bankruptcy
In most Chapter 7 bankruptcy cases, credit card debt will be completely eliminated ("discharged"). Once your credit card debt is discharged through a Chapter 7, you no longer owe that money and your creditors cannot ever attempt to collect it. If they do, it is a violation of the law and we may sue them on your behalf.
Credit Card Debt & Chapter 13 Bankruptcy
Chapter 13 bankruptcy may eliminate some credit card debt or drastically reduce what you owe. Chapter 13 can help consumers create a repayment plan at a much lower interest rate with no late fees or rate increases, and the Bankruptcy Court will force the credit card companies to accept the proposed lowered payments. You’ll make one monthly payment to a court-appointed trustee who will handle all of your debts.
Evaluating credit card discharge issues
Credit card issuers have the right to challenge the discharge of their debt in bankruptcy by filing an "adversary proceeding." In an adversary proceeding, the credit card issuer will seek to prove that the debt was incurred by fraud and therefore should be excluded from the bankruptcy discharge. This is sometimes called a "non-dischargeability action".
Credit card debt may be non dischargeable in bankruptcy under either of two legal theories:
1The application submitted to get the card was fraudulent
2The card was used without an intent to repay (more common)
Possible Issues Related to Credit Cards in Bankruptcy
While each card issuer has a different practice about non dischargeability actions, each of the following circumstances probably increase the likelihood that the debt may be subject to challenge by the creditor:
- Increase in credit card usage shortly before filing
- Newly issued card
- Large cash advances in months before filing
- Use of card for recent travel or vacations
- Pattern of borrowing on one card to make payments on others
- Exceeding credit limit
- Using card when unemployed or without reasonable belief that the debt can be repaid
- Charges made after consulting bankruptcy lawyer
Generally, the longer the length of time between any particular use and the bankruptcy filing, the less likely the usage will trigger a challenge to dischargeability. A card issuer may seek to challenge only some charges and not necessarily the entire balance.
Always Get Legal Advice
Before making any decisions about bankruptcy, always get advice from a bankruptcy lawyer. If you are in serious financial trouble, DO NOT begin digging into 401k's or your IRA, and certainly do not begin trying to transfer assets or sell any property. Bankruptcy laws offer considerable protection for people who have "become in over their head" and can save tens of thousands of dollars compared to other options.