What Happens To Credit Card Debt In Bankruptcy?

File Chapter 7 Bankruptcy: Eliminate Credit Card Debt

In the majority of Chapter 7 cases, it is fairly simple to eliminate credit card debt. This is the main reason why people opt to file Chapter 7  to Chapter 13. Apart from instances of fraud, your obligation to pay credit card debt will disappear at the end of your case.

When Does a Trustee Pay Credit Card Creditors From The Bankruptcy Estate?

The majority of Chapter 7 cases have no property to sell in order to obtain funds to pay off creditors. If there are assets in the bankruptcy estate, which is the case in very rare instances, then creditors will be paid in accordance with their ranking. Credit card debts are regarded as non- priority claims and are at the bottom of the list. Accordingly, it is unusual for a credit card company to receive payment at all.

Eliminate Credit Card Debt: What are the exceptions?

Although in a majority of cases, filing a Chapter 7 bankruptcy does eliminate credit card debt, this isn’t always the case. If you incurred a debt through a false misrepresentation, actual fraud or false pretenses, this will unfortunately stay with you. These debts are regarded as non-dischargeable, thus you are responsible to pay them back.

There are two circumstances in filing bankruptcy where credit card debts are regarded as fraudulent:

Luxury goods

In the event that you use one credit card to by more than $675 worth of luxury goods or services within 90 days of filing bankruptcy, the debt is regarded as being non-dischargeable. In terms of bankruptcy law, goods and services that are reasonably necessary for support and maintenance are excluded from the definition of luxury goods and services, for example clothing, food and gasoline will be excluded from the definition.

 Cash advances

In the event that you use a credit card to take over $950 in cash advances within 70 days of filing bankruptcy, the debt is regarded as being non-dischargeable, irrespective of what the advance is used for – these figures will change in April 2019.

These exceptions are not absolute. It is simply a presumption, thus the onus is on you to demonstrate that you intended to and reasonable believed that you could repay the debt when you incurred it. This may be extremely difficult to do.

Can creditors challenge dischargeability?

Creditors may, if they wish, file a complaint with the court to challenge the non-dischargeability of a debt. Unless a creditor files a complaint, obligations against you are discharged including luxury goods and cash advances.

With respect to chapter 7 bankruptcy, the deadline for filing complaints by creditors is 60 days after the first meeting of creditors.

In the event that a creditor files a complaint, you must respond thereto timeously if you want to dispute the creditors claim. If you respond to the creditors complaint, the court will conduct a hearing before deciding whether or not your debt is dischargeable.

What about Guarantors and Cosigners on credit card debt?

Unfortunately, the discharge of credit card debt only applies to the principal debtor in a Chapter 7 bankruptcy case and not to guarantors and cosigners. Thus they will still be liable for your credit card debt, irrespective of whether the claim is dischargeable against you.