NATIONAL
DIVORCE & BANKRUPTCY CENTER
NATIONAL
DIVORCE & BANKRUPTCY CENTER
FILING BANKRUPTCY IMMEDIATELY STOPS: Debtors get much needed 'breathing room' and discharge or reorganize (chapter 13):
The American economy is based on consumer debt. We are constantly being urged to 'buy-buy-buy'. The 1980's was a decade of readily available credit and seductive pressures urging us to 'buy' goods and services at an unparalleled rate. Many Americans have been 'led' into an almost bottomless pit of insurmountable debt overload.
Others suddenly face the reality that due to no fault of their own, they've been the victim of the dramatic 'downsizing' of their walle t. For whatever the reason, countless Americans face the daily reality that their debts far exceed their income and there's no help on the horizon. It's little wonder that economists predict the number of consumers filing bankruptcy to continue to climb each year for at least the next decade.
Individual Consumers are not the only ones who have fallen victim to the lure of credit. We live in an age where the very financial institutions granting consumers credit required $500 billion tax-payer dollar bailouts to save them from themselves. Even governing bodies, Orange County California, among them, have been forced to file for the protection of federal bankruptcy to get the 'breathing room ' they needed to 'regroup'.
The average credit card balance is reported to be in excess of $2,500, with most households having at least three cards. The typical cardholder, in 1994, used about 10 different cards for gas, groceries, retail and other credit items, including catalog orders and has an average credit card debt of $25,000 and that amount has only escalated over the years.
Most credit card debt, whether the card is issued by a bank, gasoline company or department store, are unsecured and dischargeable as such. Some department stores, most notarious - SEARS, retains a security interest in all items being bought using the store credit card making them a secured debt rather than the 'regular' unsecured credit card debt subject to discharge. Generally, SEARS will envoke its security interest on major appliances such as refrigerators, washers, dryers etc.
If you want to keep a credit card through bankrucpty, contact the bank or store before you file.If you offer to reaffirm the debt, some banks or stores may let you keep the credit card. (Reaffirm = sign a statment of intention not to discharge the debt in bankruptcy and continue to make the regular payments just as on car or home loan payments if you wish to keep the car and house.)
While credit cards are generally unsecured and therefore dischargeable in a chapter 7 straight bankruptcy, there are exceptions.
Credit card issuers occassionally challenge the discharge of their debt in Chapter 7 by filing an adversary proceeding claiming that the debt was incurred by fraud and therefore should be excepted from the discharge.
This is sometimes called a non dischargeability action.
Credit card debt may be non dischargeable in bankruptcy under either of two legal theories:
This issue arises only in Chapter 7 since, in Chapter 13, even debts tinged with fraud are dischargeable.
Hot buttons for card issuers
While each card issuer has a different practice about non dischargeability actions, each of the following circumstances probably increase the likelihood that the debt may be subject to challenge:
Generally, the longer the length of time between any particular use and the bankruptcy filing, the less likely the usage will trigger a challenge to dischargeability.
What options are available
If you are concerned about a
challenge by a credit card issuer to the discharge of a particular debt,
there are several strategies
available: