Can Chapter 7 Bankruptcy Get Rid of My Credit Card Debt?
Chapter 7 bankruptcy affords a person a “fresh start” that discharges most of the individual’s debt. Some debts are not discharged in Chapter 7 though. Many people are aware, for example, that student loan debt cannot be discharged in bankruptcy as well as tax liabilities that are recently incurred. Intentional acts that cause injury are potentially not dischargeable as well as embezzlement and theft in fiduciary capacity. Credit card debt, medical bills and utilities as well as other general unsecured debts are a different matter, where several rules apply.
In general, credit card debt can be discharged in Chapter 7, unless it is jointly held and then the other person liable on the account must pay the debt to avoid collection. Thus, co signed obligations are dischargeable but not to the co signer, who is then subject to collection for non payment. Bankruptcy courts also may hold the petitioner responsible for debt associated with luxury purchases or large cash advances that are incurred shortly before the bankruptcy filing.
Credit card debts for luxury goods valued at over $650 and purchased within 90 days of filing are not automatically dischargeable and are subject to scrutiny, as are large cash advances prior to filing. The creditor has the right to challenge those charges. If the debtor can show the “luxury” item was not really a luxury purchase, then the debt will be discharged. Also, if the petitioner can prove they intended to repay the debt, the debt can be discharged. However, they may have to defend themselves in a lawsuit in the bankruptcy case if the creditor sues. It may be better to just wait to file until the charges are over 90 days old.
The definition of a “luxury purchase” is left vague but certain common sense should indicate what meets the definition and what does not. Charging a transmission repair for example, and making a couple of payments, is different from ordering high-end winter clothing and missing the next two credit card payments. The place where the charge is made (ie., Sachs 5th Avenue as opposed to Auto Zone) may also subject the charge to scrutiny as to the need for the particular item. Likely designer clothes will never be a “need” prior to filing.
Large cash advances on a card may or may not be discharged in bankruptcy. An advance of more than $1000 made within the 90 days prior to filing for bankruptcy might not be discharged, unless the petitioner can show proof that they intended to pay off the debt. As with the luxury credit purchases, the law does not specify what counts as proof of intention to pay the credit card bill.
In short, most credit card debt can be discharged in bankruptcy. Petitioners who hold credit card debt jointly or who engage in certain buying behaviors will find their debt is not dischargeable in Chapter 7. In other rare cases, like a joint credit card, the debt may survive Chapter 7 as well.
If you are considering personal bankruptcy, we invite you to contact Zellar & Zellar Attorneys at Law to schedule your free consultation with an experienced Bankruptcy Practitioner who can fully assess your situation and advise you about your options concerning bankruptcy.
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