Bankruptcy Information: Credit Card Debt

One of the most relevant pieces of bankruptcy information revolves around the nature of credit card debt, and in turn, how credit card debts fare during the bankruptcy process. As opposed to most mortgages, auto loans, and other secured debts, credit card debt is generally an “unsecured debt”. In regards to bankruptcy, unsecured creditors (lenders owed unsecured debts by debtor) have the least success with recovering debts, save for limited instances involving Chapter 13.

Credit Card Debt in Chapter 7 and Chapter 13 Bankruptcy

Generally, the average debtor will either elect to file Chapter 7 or Chapter 13 bankruptcy. While both chapters offer protections in the form of an automatic stay of creditor collection attempts, each type of bankruptcy will address credit card debts differently.

• Chapter 7: In chapter 7, a debtor will discharge all unsecured debts, including virtually all credit card debts. However, several complications may arise during the discharge process. Individual creditors may file claims with the trustee, attempting to prevent the discharge on one of two common grounds, including that the credit line was obtained under fraudulent pretenses, or that the debtor did not intend to repay borrowed sums. In each case, the timing of the accrual of the debt, the nature of the credit card agreement, and other case-specific factors will determine whether the creditors’ claims are sufficient to prevent discharge.

• Chapter 13: In Chapter 13, a debtor will engage in what is known as the “chapter 13 repayment plan”, which will likely include repayment of certain unsecured debts. However, during the Chapter 13 process, numerous options are available for settling the creditors claim in light of the Chapter 13 filing. In limited instances, a debtor may receive a conditional discharge of certain unsecured debts at the end of the Chapter 13 plan, if limited conditions are met.

Getting Legal Help with Credit Card Debts in Bankruptcy

In practice, having legal counsel involving well before any petition to the bankruptcy courts for protection will prove immensely beneficial. Prior to filing, a bankruptcy lawyer can assess the current credit card debts owed by a consumer, and in turn, determine how each of these debt obligations may fare under both Chapter 7 and Chapter 13. Based on this and other information, the debtor can make an informed decision on when and how he or she will file for bankruptcy. For more information and insight from a bankruptcy lawyer who will understand how your specific credit card debts may fare under a proposed bankruptcy filing, consult with a bankruptcy lawyer in your state of residence today.