The credit card bankruptcy rules are very favorable to debtors--credit card debt is one of the main kinds of debts that can be effectively (or eliminated) by bankruptcy.
Credit Card Debt is Unsecured Debt
The main division in terms of types of debt is between "secured" debt and "unsecured" debt. Secured debt has collateral; there is some asset or property which the lender has recourse to--i.e. which the lender can repossess or foreclose on--if the debt is not paid. Car loans and mortgages are two types of secured debt that most people are familiar with.
In contrast, unsecured debt does not have a security interest in property; there is no collateral. While the lender can sue the borrower if he or she doesn't pay, the lender can't simply take any of the borrower's belongings.
Bankruptcy does not cancel out a security interest. That means that if a bankrupt debtor does not pay a secured debt, the lender can take the property--thought the lender will be unable to sue the debtor for any remaining balance on the loan.
Credit Card Debt May Be Discharged
Certain kinds of debt may not be discharged or eliminated in bankruptcy. These are debts for which there are good, public policy reasons to make sure that people pay them. For example, taxes due the government, child support, student loans, and money owed from causing an accident while DUI are all debts that are difficult, if not impossible, to discharge in bankruptcy.
However, if a debt--like credit card debt--is not specifically barred from discharge, it may be discharged.
What Happens to Unsecured Consumer Debt in Bankruptcy?
While a secured debt still has to be paid, or else the debtor loses the property, and certain debts are deemed non-dischargeable, all other debts can be discharged in bankruptcy. In particular, unsecured consumer debt, like credit cards, is one of the main types of debt that bankruptcy is designed to address. Therefore, if you have credit card debt, you can discharge it in bankruptcy.
How an Attorney Can Help
Bankruptcy is a very powerful remedy, but it comes with its own costs--such as a significant impact on credit worthiness. Experienced counsel can help you evaluate whether it is the right option for you.
