Much of today’s population has come to rely on credit cards for daily expenses as a means of getting by.
However, not all credit card users have the capability of paying off the debt incurred and end up over their heads before it is too late.
Chapter 7 bankruptcy is seen as an easy way out of a bad situation.
Below are a few tips or items to know when it comes to filing for Chapter 7 bankruptcy for debts incurred via credit cards:
When facing bankruptcy, it is important to know the difference between types of debt: secured and unsecured. Secured debts are those that are associated with an asset, such as a car or a home. Unsecured debts are not connected to a specific asset.
Credit card debt is a perfect example of unsecured debt given that credit cards are normally used to purchase everyday items, such as clothing, groceries, or other personal or miscellaneous expenses. When it comes to the two different types of debts, unsecured are often given lower priority than secured.
The difference between Chapter 7 and Chapter 13 forms of bankruptcy is that Chapter 7 involves a total liquidation of debt. In most situations, no assets or property exist in a Chapter 7 bankruptcy estate enough to pay off all creditors in full.
Creditors are lined up in terms of priority, and unsecured debt, such as credit cards, are towards the back of the line. These dates are then paid on a percentage basis of the claim filed.
Many times, no money is left after satisfying all priority debt, leaving credit card companies high and dry and without any payment. However, certain exceptions do exist.
While filing for bankruptcy does discharge credit card debts, that is not always the situation. Some debtors believe that they can incur as many credit card purchases as they want prior to filing for bankruptcy since they will be discharged anyway.
However, if a charge is incurred through fraud or false pretenses, the debt will stay and the debtor will remain liable for it.
Two different types of purchases are considered fraudulent if made right before filing for Chapter 7 bankruptcy:
Luxury or High Value Goods
If the debtor used a single credit card to purchase more than $675 of luxury goods or services at least 90 days before filing Chapter 7 bankruptcy, the debt is going to be dischargeable.
Under bankruptcy code, luxury goods or services are defined as any goods or services that go above those “reasonably necessary for the support or maintenance of you or your dependents.” Obviously, food, gas or clothing would not qualify under the category of luxury goods.
If a debtor uses a credit card to take out over $950 in cash advances within 70 days of filing for bankruptcy, that debt is also presumed fraudulent and is not dischargeable.
If the debtor is being accused of making a fraudulent charge with a credit card, certain exceptions do exist to help him or her out of this situation. The two categories explained above are considered presumptions not absolutes.
If the debtor is able to overcome the presumption by showing that he or she made the expense and fully intended to pay the charge when it was incurred, he or she may be able to overcome the presumption. However, it is not an easy process to accomplish.
If a creditor believes that the debtor made a charge with them and the debt should be non-dischargeable, he or she can file a complaint with the bankruptcy court to dispute the charge. The deadline under Chapter 7 bankruptcy is 60 days after the first meeting of the creditors.
If the creditor never disputes the charge’s ability to be discharged, even though it falls in one of the above two categories, the debt will be discharged despite its presumption of fraud. The debtor then has a specified period of time to file the creditor’s claim. The bankruptcy court will then hold a hearing before deciding what to do with the debt.
At RLC Lawyers & Consultants, we are here to walk you through this stressful process of bankruptcy. To request a free consultation, please call us at (561) 440-7130 or contact us online.