Due to the recent economic crisis, many Georgians have found that they cannot continue to support their household because their income is not keeping pace with their debts. Many families have seen their credit card balances in particular rise because of the need
for extra money during the holiday season.
You may have heard that if you file for bankruptcy, you can get rid of (i.e. discharge) your credit card debt. It is possible to emerge from under your heaping credit bills through the bankruptcy process but it is not a simple procedure. For starters, there are two different types of bankruptcy cases that a person can file: Chapter 7 or Chapter 13. Each chapter treats credit card debt differently – and even treats different types of credit card debt differently. Read on to learn more about how the bankruptcy process can help alleviate credit card debt.
Credit Cards in Chapter 7
In the majority of Chapter 7 cases, the debtor is able to discharge all of the credit card debt at the conclusion of the case. The reason for this benefit is because the bankruptcy law treats credit card debt as an unsecured and non-priority claim. This means that even if you have property that the bankruptcy trustee is able to sell, the profits from that sale will likely not make it to the credit card companies and will instead be directed to any secured or priority claims that are involved in your case (such as a car loan or a mortgage).
It is important to remember that a bankruptcy discharge only protects the debtor. It does not alleviate a cosigner’s or a guarantor’s responsibility for the debt, which means this person would still be on the hook for the bill even after the debtor is not.
Credit Cards in Chapter 13
The main difference between Chapter 13 and Chapter 7 is that Chapter 13 requires the debtor to make an effort to pay down as much of his/her debt as possible over a specific period of time (usually 3 to 5 years). To do so, the debtor and the bankruptcy court come up with a payment plan that the debtor must adhere for the specified period. If the debtor makes the payments according to the plan, at the end of the plan the debtor’s remaining debt is discharged just like in Chapter 7.
However, this does not mean that the credit card companies will recoup all or even much of what is owed to them. Since credit card debts are unsecured, that means they are the lowest priority for the repayment plan.
Credit Card Cash Advances
It is important to highlight that the above explanations do not mean a person can simply run up a credit card bill and then not pay for it. The credit card companies do have some protections under the bankruptcy law which prevent that sort of behavior. For example, if a debtor took out a cash advance upwards of $925 in the 70 days before filing the bankruptcy case, that specific credit card debt will usually not be discharged.
Credit Cards and Luxury Goods
Moreover, if the debtor bought more than $650 in luxury goods with a single credit card in the 90 days before filing the bankruptcy case, this credit card debt is also not discharged in the majority of cases. A luxury good is a product such as a brand new car or a service such as a spa weekend.
As you can see, discharging your credit card debt in either chapter may be a complicated process. To determine if this course of action is best suited for your case, contact our office today to speak to an experienced bankruptcy attorney about your situation. We look forward to speaking with you!