Discharging Credit Card Debt Through Bankruptcy

With the decline in the economy, loss of jobs and income, and increased personal stress and default regarding loans and credit cards, there has been an increased interest in the idea of discharging credit card debt through bankruptcy. Discharging credit card debt, or eliminating the debt through bankruptcy has become more difficult in recent years in light of more stringent income tests for those filing Chapter 7 bankruptcy. In addition, both Chapter 7 and Chapter 13 bankruptcy filings can now be challenged by the credit card companies under recent changes to the law, so that if there are any questions in the company’s mind, they can contest the proceedings to try to recover the money that is owed to them by the cardholder.

Types of Bankruptcy

There are two main types of personal bankruptcy that can allow for the discharge of credit card debts.  Chapter 13 bankruptcy lowers payments and helps you structure a repayment plan with your creditors that will keep your property safe while you repay what is owed over a longer period of time.  Chapter 13 is the least-damaging form of bankruptcy to your credit because it exists on the premise that you will repay your debts but may simply need protection from your creditors while doing so. However, under Chapter 13, you do not discharge debt, you simply restructure it and pay less.

Chapter 7 bankruptcy is the traditional “total bankruptcy” where most of the debts are discharged completely and never need to be repaid.  This type of bankruptcy requires an inventory of items that you own, and typically requires liquidation of property, with the exemption of exemptions such as some home equity, and other assets to pay some debts.

Credit Card Companies and Contesting Bankruptcy

There are a number of factors that credit card companies will examine to determine whether or not they plan to contest or challenge the discharge of the debt owed to them during a bankruptcy.  The age of the account is one such factor, as the practice of taking out credit specifically to buy things and then declare bankruptcy has increased in the recent years. 

Other factors include whether or not one card is paid while others are neglected, whether or not large cash advances have been taken from any credit cards during the time period preceding the bankruptcy, and whether there have been increases in the usage of the card prior to filing, especially for frivolous items such as vacations or expensive appliances.  In addition, card companies will also look at whether or not the cards were used while the owner was unemployed to determine whether the cards used without the intent or ability to repay them. In such cases, the credit card company may contest the bankruptcy or discharge of the debt.

Get Help

When declaring bankruptcy for the purpose of getting rid of credit card debt, it is important to consult with an experienced attorney who can help you determine what type of bankruptcy you qualify for and what your rights are under the law for eliminating your debt.