When an individual files for bankruptcy, they often have questions about what they can and cannot get rid of in terms of debt. Credit card debt is the number three cause of bankruptcy in the United States, and it is important to understand what is dischargeable under the terms of Chapter 7 or Chapter 13 bankruptcy. It is important to consult a good bankruptcy attorney with any questions you may have.
In almost every case, credit card debt is wiped out by a Chapter 7 filing. Credit card debts are unsecured, meaning that they have no collateral behind them to guarantee their payment, and in a Chapter 7 filing, unsecured debts are at the bottom of the priority scale. They are often never paid, because any money obtained by selling off the debtor’s assets (if any) goes first to paying secured debts, such as mortgages.
Exceptions to Dischargeability
The exception to the dischargeability of credit card debts is in the case of fraud; fraud has a slightly different meaning in this case than it does normally. In discussing credit card debts, a debt is generally labeled fraudulent if it was incurred with no expectation of repayment. Fraud is generally a rebuttable presumption, though; the bankruptcy court will consider the charges incurred fraudulently unless you present evidence to the contrary, and that you intended to repay the debt. Two instances are usually presumed to be bad debts: the purchase of luxury goods and cash advances.
If you use one credit card to pay for more than $650 worth of “luxury goods” less than 90 days before your bankruptcy filing, the debt is deemed non-dischargeable. The Bankruptcy Code does not define luxury goods, but the case In re Shaw states that luxuries are ‘things that constitute extravagances or self-indulgences.’ In other words, anything that is actually necessary for you or your dependents’ reasonable support is not a luxury.
Regarding cash advances, if you use one card to take over $925 in cash advances less than 70 days before your bankruptcy filing, the debt is deemed non-dischargeable. It does not matter what you use the money for, even if it is used to support your family. This only applies if the $925 is charged on one card; if, for example, you get $500 in cash advances from two different cards, the presumption of fraud (no intent to repay) is not triggered.
Any other debts besides the two listed above are generally held to be dischargeable, though a credit card company may contest that if the claim is filed in a timely manner (usually within 60 days after the first meeting of creditors, which happens not long after a bankruptcy is filed).
Something debtors should be aware of is that any finding of dischargeability only applies to you, and not any guarantor or cosigner you may have on your debts. Anyone who shares your debts needs to file their own bankruptcy petition in order to have that debt discharged.
The Dowe Law Firm has a history of excellence. If you need help getting your credit card debts under control, please do not hesitate to contact us. We serve Contra Costa, Solano and Alameda counties.
If you want to get rid of your Credit Card Debt give us a call at 510-233-7700 and schedule your free initial consultation. You will be glad you did.