Discharging Credit Cards Through Chapter 7 Bankruptcy

May 4, 2012

A Chapter 7 bankruptcy case can discharge many financial obligations, including credit card debts. A Chapter 7 discharge means that the credit card company is permanently prohibited from trying to collect from you. The debt is unenforceable against you, and you are not required to pay income taxes on the discharged debt.

Credit cards are classified as "unsecured debts," the lowest category of debts during bankruptcy. Other common unsecured debts are medical bills and signature loans. The payment of an unsecured debt is not guaranteed by a pledge of property (e.g. a car loan). Consequently, when an unsecured debt is discharged in a Chapter 7 bankruptcy, the creditor typically receives nothing.

Discharging a credit card debt in a Chapter 7 bankruptcy case comes down to one simple rule: was the debt incurred honestly? The Chapter 7 bankruptcy laws favor discharging credit card debt and giving the honest debtor a fresh start. However, the law balances the scale by withholding the discharge when the debtor is less than honest.

First, a credit card that is not listed in your Chapter 7 bankruptcy case is often excluded from your discharge. This is especially true if you continue to use the card during or after filing bankruptcy. The additional charges made after filing bankruptcy cannot be discharged, and becomes good evidence of an intent to conceal the credit card from the court and the bankruptcy filing from the creditor.

Second, if you go on a spending spree with our credit card immediately before filing bankruptcy, those charges are presumed non-dischargeable. This rule includes "luxury purchases" of more than $600 made within 90 days of the bankruptcy, as well as charges made on your card that you have no intention of repaying. The best advice is to stop using your credit card before you file bankruptcy.

Third, if you take cash advances totaling $875 within 70 days prior to filing bankruptcy, the debt is presumed non-dischargeable.

Fourth, a false statement to the credit card company on your application could be used to deny discharge of the debt. While credit card companies seldom use this tactic, if there is plain evidence of fraud (e.g. your yearly income was $20,000, but you claimed it was $200,000), the credit card company may file an adversarial action during your case and seek to deny your discharge.

Discharging credit card debt is usually a simple matter in a Chapter 7 bankruptcy case. It is very important to answer your attorney’s questions honestly and fully in order to receive the best advice. Your attorney can often avoid problems when they are revealed in advance, and can get you the relief you need.

 

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