Bankruptcy and Credit Card Debt Relief

One of the most common questions people considering bankruptcy ask is whether filing will give them any relief from credit card debt.  The answer is yes. 

The Automatic Stay

Whether a debtor files Chapter 7 or Chapter 13, the pressure the credit card companies, banks, and collection agencies are exerting will stop.  The automatic stay prevents all of a debtor’s creditors from making any collection efforts against a debtor or this property.  This means that the harassing phone calls, letters, lawsuits, and garnishments will stop. 

How Is Credit Card Debt Treated in a Bankruptcy?

Credit card debt is classified as general unsecured debt and is dischargeable in bankruptcy.  If a debtor files a Chapter 7 case, all of his credit card debt will be discharged.  

If a debtor files a Chapter 13 bankruptcy, depending on the composition of his Chapter 13 plan and what his monthly net disposable income is, he may be required to pay at least a portion of his credit card debt.  In some instances, a Chapter 13 debtor may pay as little as one cent for every dollar he owes on his credit cards.  Whatever amounts have not been paid at the completion of the Chapter 13 case will be discharged. 

What If the Bank Has Already Obtained a Judgment?

If the bank has successfully sued a debtor and obtained a judgment prior to the time the debtor filed bankruptcy, that debt will be treated as a secured debt.  Because judgments are liens which attach to all of a debtor’s property, it’s possible that a debtor may be relieved of the obligation to repay the debt by filing a Motion to Avoid Lien.  A judgment lien may be avoided if it impairs an exemption. 

Exceptions

There are two instances when credit card debt may not be dischargeable in bankruptcy. 

• When the application that was submitted to obtain the credit card was fraudulent, a creditor may challenge the dischargeability of the debt.
• If the debtor used the credit card and had no intention of repaying the debt, the creditor may challenge the dischargeability of the debt. 

Getting Legal Help

If you are considering bankruptcy and have concerns about whether your credit card debt will be discharged, you should consult with a bankruptcy attorney.  A qualified bankruptcy attorney will review your credit card statements, credit reports, and other circumstances surrounding your credit card debt and advise you of whether it is likely any of your credit card issuers will challenge the dischargeability of your credit card debt.