SECURED VS UNSECURED DEBT
Generally, there are two types of debt, which are secured debt and unsecured debt. Secured debt typically is attached to some form of property that has been pledged to the lender as collateral. For example, a home secured by a mortgage, or a car secured by a loan from a car lender is secured debt. Credit cards, medical debt, personal loans and most other types of debt are all unsecured as long as the debt has not been pledged as collateral in support of the loan.
WHAT IS A BANKRUPTCY DISCHARGE
Whether filing chapter 7 or chapter 13 bankruptcy, the goal for filing bankruptcy is to get a discharge. A bankruptcy discharge is a court order letting all creditors know that the debt has been legally forgiven, and creditors are no longer able to collect on the discharged debts. The discharge is given when all requirements from the bankruptcy filer have been fulfilled at or near the end of the case.
IS CREDIT CARD DEBT DISCHARGEABLE IN BANKRUPTCY
In most cases, credit card debt is unsecured debt. In chapter 7, unsecured debt like credit cards is dischargeable. When filing a chapter 7 bankruptcy, all debt from any source must be reported in your bankruptcy. Your credit cards and other debt will all receive a notice from the bankruptcy court letting them know you have filed. In most cases, these lenders are wary of what it means when someone files bankruptcy and the close out the account. Creditors will move on from the debt because the bankruptcy laws prevent any further collection from the filer. There are severe sanctions that may be imposed upon a creditor for attempting in any way to collect on a debt once bankruptcy has been filed. The bankruptcy filer receives a discharge of all debt, and the case eventually ends.
In chapter 13, unsecured creditors are afforded an opportunity to file a claim. Claims allow the court to approve payment to the creditor in the bankruptcy filer’s chapter 13 plan. When plan payments are made, a part of each payment is paid to the creditor. In many cases, only a part of the total unsecured debt is paid, and the remaining unpaid balance is discharged at the end of the plan.
WHEN IS CREDIT CARD DEBT NOT DISCHARGEABLE IN BANKRUPTCY
Whether filing chapter 7 or chapter 13 bankruptcy, credit card debt is presumed to be dischargeable when the case is filed. For a creditor to protest the bankruptcy filer’s discharge for its specific credit card, the lender must file an objection in court against the bankruptcy filer stating under oath specific facts that show the bankruptcy filer should not be allowed a discharge for that credit card. This does not mean all debts are excepted from discharge, but only the one specific credit card facing the objection.
There are two main reasons why a credit card lender would object to your discharge. One, you ran up the bill, then filed bankruptcy. In some cases, a person makes a bad decision by using a credit card for luxury items or expensive and unnecessary purchases within ninety days prior to filing bankruptcy. In most cases, if a credit card is used for necessary purchases such as food, gas, clothing, medication or other necessities, a credit lender will overlook those purchases. However, when the card is used for lavish unnecessary purchases, the lenders will object. In these cases, lenders can ask the court to deem your discharge as unapplicable to their debt. Second, if a credit card lender can prove that the bankruptcy filer was committing fraud when the credit card was opened, then the lender can persuade the court to deem the debt as non-dischargeable. Credit card fraud can come in many ways, but it usually begins with lying on an application or taking out the credit card with no intention of ever paying the funds used back to the lender. There may be other factors, but the thing to remember is that if you are acting in good faith, you won’t have to worry about a dischargability complaint being filed against you in bankruptcy.