Discharging A Credit Card Debt
A previous post – Can You Include Credit Card Debts In Your Petition? – dealt with some of the issues relating to credit cards and bankruptcy. Today’s post looks purely at discharging a credit card as opposed to seeking a longer payment period.
Totally discharging a credit card debt is generally undertaken using a Chapter 7 filing for bankruptcy. Under a Chapter 7 filing, a means test is applied to determine whether or not you have the financial capability to service the debt. If you don’t then you will be granted relief and the debt discharged. This means, in simple English, that the debt is wiped away.
Once a Chapter 7 petition has been granted, the credit provider has 60 days to write off that debt. The credit card issuer can challenge the discharge of the debt, however, the onus is on them to prove an irregularity. Credit card providers can challenge based on the following:
- An increase in credit card use just prior to filing
- Large cash advances just prior to filing
- Use of the credit card for recent travel and/or vacations
- Using one card to make payments to other credit cards
- Constantly exceeding the credit limit
- Using the card when clearly not in a position to make payments such as when unemployed
- Charges made after consulting a bankruptcy lawyer
Some of these reasons can be argued against. If you have frequently exceeded the credit limit with the credit provider either not taking any action, or actually increasing your credit limit, they may be considered part of the problem and their challenge denied.
On the other hand, if you become unemployed and continue to use your credit card even though you are not in a position to make repayments you may find their challenge accepted and you will then need to repay the debt.
Nothing is clear cut in these issues. For example, although you may have become unemployed, if there was a reasonable expectation of re-employment that didn’t eventuate, you may have a counter argument. This is one of the reasons why you should consult a bankruptcy lawyer as soon as possible if bankruptcy is becoming a serious option. Every case is different so a specialist lawyer will examine your situation and offer advice. Don’t wait if debt is becoming a burden.
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April 29th, 2010 at 3:57 pm
Somehow, between me and my husband, we have managed to accrue $21K in credit card debt. We can’t seem to find a way out. We have tried to budget, we have done research, and we have even cut out alot of fun stuff in our lives. I think it’s time for me to get a part time job. If we can’t pull this off, we may have to declare backruptcy.