When a Debtor has Credit Cards and files for Bankruptcy Relief whether it be under Chapter 7 or Chapter 13 the debts are most always considered unsecured. How a Credit Card Debt is treated in Bankruptcy depends on the Chapter filed which is based in The Bankruptcy Means Test.
You should stop using your credit cards immediately and not incur any additional debt once you have determined that you are going to file for Bankruptcy Relief. In almost every Bankruptcy situation, your credit card will be canceled by the issuer upon notice of the filing. Your credit card may be canceled even if you have a zero balance. Whether you can keep the credit card or not is at the sole discretion of the credit card company.
If you are interested in keeping a particular credit card, you should contact the issuing company after the bankruptcy has been filed. If they will allow you to continue to use the card, tell them to forward a "reaffirmation agreement" to your attorney’s attention. This agreement obligates you to pay the credit card company but will allow you to use the card. Keep in mind that It is up to each particular creditor, not you, as to whether they offer a reaffirmation agreement or not.
Although credit card debts are most always dischargeable under a Chapter 7 or may be significantly reduced in a Chapter 13 there are certain circumstances where credit card debt may be deemed entirely nondischargeable. Some instances include credit card use to pay for student loans, property taxes, child support, or issues of fraud.
Credit Card Debt in Chapter 7 Bankruptcy
When you file for a Chapter 7 Bankruptcy, you are required to list all your creditors to whom you owe money. If you do not owe money on a credit card, you do not list it in your bankruptcy petition. On credit cards where you do owe money, it is still possible to keep those cards by reaffirming them. A reaffirmation is an agreement that is signed by you, your creditor, and your attorney which is filed with the Bankruptcy Court. A reaffirmation agreement says that you may keep your credit card and that you will continue to be responsible for paying it. It is not usually a good idea to reaffirm a credit card. Keep in mind that It is up to each particular creditor, not you, as to whether they offer a reaffirmation agreement or not. Reaffirmations are usually reserved for secured debts such as car loans or mortgages.
Chapter 7 Bankruptcy will eliminate credit card debts unless there are questions of fraud or other matters of “non-dischargeability”. Should a credit card issuer challenge the dischargability of their debt in the Chapter 7 Bankruptcy; they may file an adversary proceeding which is a type of lawsuit in the Bankruptcy Court. an adversary proceeding or “non-dischargeability” action would likely claim that the debt was incurred by fraud and therefore should be excluded from the Discharge in Bankruptcy. Every credit card issuer has a different procedure and criteria to determine what may bring about a dischargeability action but most often card issuers look for:
- An Increase in credit card use right before the Bankruptcy filing
- Large cash advances shortly before the Bankruptcy filing
- A pattern of charging one card to make payments on others
- Regularly exceeding the credit limit
- Using the credit card when unemployed or without reasonable belief that the debt can be repaid
- Large balance at the time of filing
- A recently issued card
- Making charges after the Bankruptcy is filed
The more time between a particular credit card use and the actual bankruptcy filing, the less likely the credit card usage will trigger a challenge to dischargeability. Most Chapter 7 Bankruptcy filings that include credit card debt are not challenged with dischargability actions. And, in the absence of fraud most Chapter 7 Bankruptcy debtors are able to completely eliminate their credit card debts under Chapter 7.
Credit Card Debt in Chapter 13 Bankruptcy
Credit Cards like other unsecured creditors, such as medical providers, and utility companies under a Chapter 13 Bankruptcy are not treated the same as they are in a Chapter 7 Bankruptcy filing. This means that a Bankruptcy Debtor cannot completely eliminate their unsecured debt entirely under a Chapter 13 Bankruptcy. However, unsecured debt in a Chapter 13 Bankruptcy can possibly be paid back at less than 100% of what the creditors are owed. Creditors under a Chapter 13 Bankruptcy plan could be paid back 100% of their debt, or as little as 10%.
Under most all circumstances unsecured creditors will receive NO INTEREST on the debts they are owed. This means that the amount you owe on your credit cards or other unsecured debts on the date you file your bankruptcy is the largest amount that an unsecured creditor will be entitled to be paid back. Without the filing of a Chapter 13 Bankruptcy, the monthly payments you might be struggling to make each month to your credit cards will hardly make a dent in the amount you owe them. Most all of your payment goes to pay the interest on the outstanding debt or over limit and administrative charges. Under Chapter 13 Bankruptcy, you are assured that your credit cards and unsecured debts are paid in full at the end of your Chapter 13 Bankruptcy plan. Simply put, a Chapter 13 Bankruptcy is a Debt Relief tool that can help to consolidate debts and pay those debts back over a period of time at a payment plan you can afford, and on your own terms.
If you have questions about Credit Cards and Bankruptcy or questions about filing for Chapter 7 or Chapter 13 Bankruptcy please contact The Law Offices of R.J.Atkinson,LLC at 713-862-1700 for a free initial consultation to discuss your legal options. With locations in Houston, San Antonio, Austin, and Dallas we are a Texas Debt Relief Agency and help people file for Bankruptcy under the Bankruptcy Code. Don’t drown in your debt get a fresh start today…
