Credit Card Debt in Bankruptcy

Credit card debt is generally unsecured debt and may often be discharged in bankruptcy. Exceptions may apply when the debt was obtained through fraud, false pretenses, false representations or other conduct covered by bankruptcy law.

Chapter 7 may eliminate personal liability for qualifying credit card balances after the debtor successfully completes the case and receives a discharge.

Credit card debt is generally treated as nonpriority unsecured debt in Chapter 13. The amount paid depends on income, expenses, assets, plan requirements and other circumstances. A qualifying unpaid balance may be discharged after plan completion.

Yes. A debtor must disclose all creditors and credit card accounts in the bankruptcy documents, including cards with small balances, closed accounts and accounts the debtor may prefer to keep.

A debtor generally cannot omit a creditor simply because the debtor wants to keep the account. All debts and creditors must be disclosed accurately.

Credit card issuers commonly close or suspend accounts after learning of a bankruptcy filing, including accounts that have no balance.

Whether payments should continue depends on the anticipated filing, budget, account activity and other circumstances. A person considering bankruptcy should obtain legal advice before changing payment practices.

Yes. A credit card company may challenge dischargeability when it alleges that debt was obtained through fraud, false pretenses, a false representation or another applicable exception to discharge.

Recent charges are not automatically nondischargeable in every case, but their timing, amount, purpose and the debtor’s intent may be closely reviewed. Certain recent luxury purchases may be subject to a statutory presumption.

Cash advances may be challenged based on their timing, amount and surrounding circumstances. Certain cash advances taken shortly before bankruptcy may be presumed nondischargeable under federal bankruptcy law.

Luxury purchases generally involve goods or services that are not reasonably necessary for the support or maintenance of the debtor or the debtor’s dependents. The determination depends on the facts of the purchase.

Yes. Debt obtained through false pretenses, false representations or actual fraud may be declared nondischargeable if the creditor proves the required legal elements.

Continuing to incur credit card debt after deciding to file bankruptcy may create serious dischargeability concerns, especially when the debtor lacked a reasonable intent or ability to repay the charges.

Balance transfers may be examined along with other recent account activity. The timing, amount, reason for the transfer and intent to repay may affect whether a creditor raises an objection.

A pattern of using one credit account to pay another may be reviewed as evidence of financial distress and may become relevant if a creditor alleges that charges were incurred without an intent to repay.

A Chapter 7 discharge generally protects only the debtor who filed. A non-filing cosigner, guarantor or joint account holder may remain responsible for the debt.

Chapter 13 may provide a temporary codebtor stay for certain consumer debts. The protection is limited, and a creditor may seek permission to proceed against the cosigner in some circumstances.

Filing bankruptcy generally creates an automatic stay that stops most collection calls and letters concerning qualifying pre-bankruptcy credit card debt.

The automatic stay generally stops the filing or continuation of a lawsuit seeking to collect qualifying credit card debt after the bankruptcy case is filed.

Filing bankruptcy generally stops an ongoing wage garnishment for qualifying credit card debt. The creditor, collection attorney and payroll department should receive prompt notice of the filing.

Bankruptcy may discharge personal liability for a qualifying credit card judgment. A judgment lien recorded against property may require separate analysis and is not necessarily eliminated automatically.

Bankruptcy does not automatically delete accurate account history. Credit card accounts should generally be reported consistently with the bankruptcy, including a discharged status and no improper personal balance due.

Many debtors receive credit offers after bankruptcy. New credit should be evaluated carefully for interest rates, fees, affordability and its effect on rebuilding credit.

No. The appropriate option depends on income, assets, total debt, collection pressure, repayment ability and available alternatives. A bankruptcy attorney can compare Chapter 7, Chapter 13 and non-bankruptcy options.

Ferguson & Ferguson can evaluate whether credit card debt may be discharged, determine Chapter 7 or Chapter 13 eligibility, review recent charges and cash advances, respond to creditor objections and help stop qualifying collection activity. Call the Huntsville office at 256-534-3435 or the Decatur office at 256-350-7200 to schedule a consultation.