Question: Can Bankruptcy Eliminate My Credit Card Debt?
In short, yes. Chapter 7 bankruptcy can eliminate unsecured debts, and most credit card debt is unsecured. Some credit card debts qualify as secured debt, but this is rare. Most credit card debt is unsecured and subject to discharge in chapter 7 bankruptcy.
There are some reasons why your credit card debt may not be discharged and thereby eliminated in chapter 7 bankruptcy. If you used your credit card shortly before filing for bankruptcy it may be argued that you incurred the credit card debt without any intention of repaying it. In other words, since you used the credit card on the eve of bankruptcy you “fraudulently” incurred the debt in that you were incurring debt knowing that you would soon eliminate the debt in bankruptcy. Under section 523 of the bankruptcy code fraudulently incurred debts cannot be eliminated in bankruptcy. Therefore, most bankruptcy attorneys instruct clients to stop using their credit cards right away.
You can find out how much credit card debt you have by ordering a credit report. Many bankruptcy attorneys will order a 3-source credit report before you file for bankruptcy so that you can comprehensively list your debts in the bankruptcy petition. If your bankruptcy attorney will not order a professional credit report on your behalf, you should pay for one yourself. Having a thorough understanding of your debts and the address of your creditors can make the difference between discharging and not discharging a debt in chapter 7 bankruptcy.
In chapter 13 bankruptcy your credit card debt will be bundled together with your other general unsecured debts. From there your chapter 13 plan may provide for no repayment of your general unsecured debts, a partial payment of your general unsecured debts, or 100% repayment of your general unsecured debts. To propose no repayment you cannot have any non-exempt property that would otherwise be sold in chapter 7 bankruptcy. (This requirement is known as the “best interests of creditors test.”) Most chapter 13 plans call for some repayment of general unsecured debts but less than full repayment. Once you have completed the plan payments for your confirmed chapter 13 plan you will receive a discharge of your remaining general unsecured debts which will include your remaining credit card debt.