Most people considering bankruptcy have racked up a considerable amount of credit card debt — you may have used your credit to pay for necessities or medical bills, and now you find yourself falling behind in your payments. What are your options? Is filing bankruptcy on credit cards a good idea?
Is Credit Card Debt Secured or Unsecured?
Credit card debt is unsecured debt, meaning that it isn’t secured against a property.
If you owe thousands of dollars in credit card payments that you simply cannot afford to pay, your creditors can file a lawsuit against you. If they are granted a judgment, they can place a lien on your real estate, including your own home. In other words, they can turn the unsecured debt into a secured debt. Filing bankruptcy, however, can prevent this from happening.
Discharging Credit Card Debt in Chapter 7
Nonpriority debt (like credit card or medical debt) is not eligible for special treatment in bankruptcy. If you file under Chapter 7, this debt is simply wiped out. While Chapter 7 liquidates valuable assets to repay creditors, chances are you don’t have significant assets to draw from anyway. Additionally, you will be able to exempt some property from liquidation.
And once the bankruptcy is final, you can get a fresh start and begin rebuilding your credit without thousands of dollars and lawsuits hanging over your head.
Repaying Credit Card Debt in Chapter 13
Chapter 13 won’t discharge all of your credit card debt. You will likely have to pay some of it back. In Chapter 13, you present a repayment plan to the court. Priority debts like your mortgage payments, child support arrearages, and back taxes take precedence. Unsecured debts like credit cards or medical bills are prioritized the lowest. You may have to repay some, none, or all of these debts based on your income.
What Is a Debt Collection Lawsuit?
If your creditors file a lawsuit against you, you have a short window of time in which to act. The court will find in their favor so long as they can prove you owe the debt. The creditor will tack on the cost of litigation to the money that you owe.
Once there is a judgment in place, they can begin taking more aggressive actions against you. These include placing liens on your property, garnishing your wages, or levying your bank account.
Bankruptcy offers you a reprieve. Once you file, all creditor actions against you must immediately stop. This includes suspending lawsuits. However, if your creditors have already placed a lien on your real estate, that lien may not be lifted by filing for bankruptcy.
For obvious reasons, the best time to file for Chapter 7 is prior to a creditor lawsuit. The automatic stay will prevent your creditors from moving forward with property seizures, wage garnishments, or bank levies.
What If a Creditor Objects to a Debt Discharge?
In some cases, a creditor may object to the discharge of a certain credit card debt. This will depend on the type of good that was purchased on credit. If you just purchased a boat on your credit card, you cannot both keep the boat and discharge the debt. That would be unfair to the creditor.
The creditor will raise an object during an adversary proceeding. If you use your credit card to charge more than $675 in “luxury” items within 90 days of your Chapter 7 filing, the court will likely assume that this was an attempt at fraud and force you to repay the debt in full.
Additionally, if you used your credit card to pay off non-dischargeable debt, such as child support, the creditor will likely object to the discharge. The bankruptcy court will not let you convert a nondischargeable debt into a dischargeable one by moving the liability from yourself to the creditor.
How a Charlotte Bankruptcy Attorney Can Help
If you’re behind on credit card payments, you’re likely incurring late fees, interest rates, and your income is barely enough to keep you afloat. And once you’re in a debt spiral, it’s very difficult to pay your way out of it. Filing bankruptcy on credit cards can help.
A Charlotte bankruptcy attorney can do the heavy lifting for you. We will file your forms, ensure that you are keeping up with your schedule, and guide you through each choice you will have to make. To learn more about how we can help, contact the Law Office of Jack G. Lezman, PLLC today.