How is Credit Card Debt Handled in a Bankruptcy Case?

A Chapter 13 bankruptcy will allow a consumer to restructure credit card debt over a period of three to five years.  Monthly payments are made to the bankruptcy trustee based upon the amount of disposable income available.  Once this debt solution is complied with, any remaining liabilities are written off and the consumer can be completely debt free.  A Chapter 7 bankruptcy is designed to quickly eliminate all of your credit card debt, and only unsecured debt may be included in this filing.

Once a consumer files bankruptcy, lenders have 60 days by federal law to “charge off” the filer’s accounts, recognizing that the debt is uncollectible and taking the loss.  However, sometimes credit card issuers challenge the discharge of their debt in bankruptcy by filing an adversary proceeding, claiming that the debt was incurred by fraud, and therefore should be excluded from the discharge.

Credit Card Company Issues and Reasons to Object to Discharging Debt

While each credit card issuer may have a different practice when is comes to non-dischargeability actions, some of the following circumstances may increase the likelihood that the debt may be subject to challenge by the creditor:

• Increase in credit card usage shortly before filing
• Large cash advances in the months before filing
• Newly issued credit card
• Using the credit card for recent travel and/or vacations
• Borrowing from one card to make payments to other credit cards
• Exceeding the credit limit
• Using the card when unemployed or without reasonable belief that the debt can be repaid
• Large balance at filing
• Charges made after consulting with a bankruptcy attorney

In general, the longer the length of time between any particular credit card use and the bankruptcy filing, the less likely the usage will trigger a challenge for the creditor.

Talk to an Attorney First

An attorney who specializes in bankruptcy law should be your first choice when filing a Chapter 7 or Chapter 13 bankruptcy case.  Put together a list of questions to ask the lawyer, such as how many filings he has handled, which, if any chapters he or she specializes in, and how successful they are at having the debt dismissed.