Are all of my credit card debts forgiven in a Chapter 7 bankruptcy?
Credit card debt is one of the main reasons people file for bankruptcy. People file for Chapter 7 bankruptcy in order to discharge their debts and to get a fresh financial start. Most credit card debts are dischargeable in Chapter 7 bankruptcy, which means you will not have to pay the debt after you complete the bankruptcy.
However, there are exceptions to the dischargeability of credit card debt. There are several factors to determine whether your credit card debts will be discharged. First, you have to qualify for filing Chapter 7 bankruptcy by passing a “means test” that compares your income to a set of living expenses required under governmental standards. Second, if you pass the means test, the credit card debts still may not be discharged depending on the circumstances the credit card debt was incurred.
What are the credit card discharge issues?
Credit card companies may challenge the discharge of their debt in bankruptcy by filing an adversary proceeding claiming that the debt was incurred through fraud. The credit card debt may be non-dischargeable in bankruptcy if the credit card application you submitted to get the card was fraudulent or the credit card charges were made without intent to repay. Examples of fraud are exaggerating your income to obtain the credit card or making charges on the credit card knowing you were going to file for bankruptcy or that you had no ability to repay.
What are the factors used in determining credit card fraud?
There are a number of factors that are analyzed in determining whether your credit card debt will be discharged. If the credit card company challenges the debt, the bankruptcy court may consider the following:
The time elapsed between the credit card use and the bankruptcy filing;
- The increase in credit card use shortly before filing bankruptcy;
- Whether you exceeded the credit card limit;
- Whether you used the credit card when unemployed or there was a change in your employment status;
- Whether you made large cash advances in the months before filing bankruptcy;
- Whether you purchased luxury goods or services or used the credit card for travel or vacations recently;
- The existence of a large balance at the time of the bankruptcy filing;
- The amount of your other debts; and
- Whether you made credit card charges after consulting with a bankruptcy attorney or debt counselor.
Under the bankruptcy law, credit card debt owed to a single creditor of more than $650.00 worth of luxury goods or services purchased within 90 days of the bankruptcy filing is presumed to be non-dischargeable in bankruptcy. Further, credit card cash advances totaling more than $925.00 and made within 70 days of the bankruptcy filing is presumed to be non-dischargeable in bankruptcy.
How does a credit card company challenge the dischargeability of the debt?
A creditor seeking to challenge the dischargeability of a debt must file a lawsuit with the bankruptcy court which is called an “adversary proceeding.” If a credit card company does not file an adversary proceeding with the court, then the debt is discharged in bankruptcy. The deadline to file an adversary proceeding is generally 60 days after the date of the first meeting of creditors.
What can I do to avoid problems and get a discharge?
The best way to deal with these issues is be honest with your credit card use. Stop using your credit cards now. If you cannot pay the credit card debt you have already incurred, you will not be able to pay any new debt you incur.
Gather your credit card statements from the past year, so that your credit card use may be accurately examined. Tell your attorney about your credit card use at your first meeting.
It may be advisable to delay filing for bankruptcy until a later date. Consider filing a Chapter 13 bankruptcy case where you pay back some of the debt through a repayment plan. Alternatively, consider negotiating with your credit card companies before filing bankruptcy.
As the foregoing discussion shows, there are many factors that go into whether you can discharge your credit card debt in bankruptcy. We have dealt with these issues for many years. Please contact us if you would like to discuss your case.