Can I Get Rid of Credit Card Debt in Bankruptcy
One of the major reasons that people file for Bankruptcy is to cancel, or discharge, credit card debt. Credit cards tend to have high interest rates and also high late fees and other costs. Because credit card debt is in essence a high risk loan, the high cost of borrowing is not surprising.
Credit card companies do however, target college students and people with limited resources, including recently bankrupt debtors, with marketing plans that take advantage of inexperience and desperate situations. Credit cards are a means of getting by as a last resort but the resulting high minimum monthly payments can push a person quickly toward bankruptcy.
Most Credit Card Debt Can Be Discharged in Bankruptcy
The good news is that most credit card debt can be discharged in bankruptcy as is true of most unsecured debt. Unsecured debt is debt that is not a lien on real or personal property. Examples of secured debt are a home loan or an auto loan.
Some credit card debt can however, be secured debt. Department store credit cards, like Sears, or cards issued for a specific purpose such as financing the purchase of major appliances, may be secured in part. Typically, major appliances on your Sears card are secured, while back to school clothes are not. This means that the portion of the bill that is secured must be reaffirmed in order for the debtor to keep the appliances.
Another common secured consumer credit debt is the purchase of tires and wheels from tire company chains. If Les Schwab Tires issues a credit card for such a purchase, the debt is most likely secured. In either case, the creditor will usually provide a reaffirmation agreement, a reduced balance and a new lower monthly payment.
Some unsecured credit card debt may also be non-dischargeable. If the credit card debt was incurred for “luxury items” within 90 days of the bankruptcy filing, then those charges will not be canceled. The statute includes in the definition, of “fraud, false pretenses and intent to deceive”
- 523. Exceptions to discharge.
- consumer debts owed to a single creditor and aggregating more than $500 for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be nondischargeable; and
- cash advances aggregating more than $750 that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 70 days before the order for relief under this title, are presumed to be nondischargeable; and
- for purposes of this subparagraph-(I) the terms “consumer”, “credit”, and “open end credit plan” have the same meanings as in section 103 of the Truth in Lending Act; and (II) the term “luxury goods or services” does not include goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor;
A presumption of non-dischargability means that the creditor does not need to prove anything to keep the debt from being cancelled.
Discounts For Discharging Credit Card Debt
Another option has become available because of the recession and failure of many financial institutions since 2008. Credit card companies and collectors will usually give a deep discount, some up to 70%, for a lump sum payment. Note however, that a debt that is written off will be shown as income on your taxes unless you meet some specific exemptions. This is because the creditor will claim a loss for tax purposes. Debts that are discharged in bankruptcy, on the other hand, are not taxed as income.
A simple question often times has a complicated answer in the world of bankruptcy. An experienced bankruptcy attorney can help you consider all options, including non-bankruptcy workouts.