Can Bankruptcy Clear All of Your Credit Card Debt?
Credit card debt is a leading factor causing people to file for bankruptcy in Pennsylvania and across the country. If you fall behind on your credit card payments, it is not unusual for a creditor to raise your interest rate to somewhere around thirty (30%) percent. Also, if you fall behind on one card, other card providers can raise your interest rate as well. Before you know it, even if you make the minimum payment, your balance always seems to increase.
Chapter 7 Bankruptcy Effects of Credit Card Debt
By filing for chapter 7 bankruptcy, most, if not all of your credit card debt will get discharged, which means that it will go away. The first thing to keep in mind is that bankruptcy is for the honest but unfortunate debtor. If you use your credit cards on lavish purchases with no intent to pay back the debt, then your credit card debt will not be discharged.
If you spend more than $500.00 on luxury goods or services within ninety (90) days of filing for bankruptcy, that amount will presumed to be non-dischargeable. If you take a cash advance of more than $750.00 within seventy (70) days of filing, that amount is also presumed to be non-dischargeable.
If you are going to file a chapter 7 bankruptcy petition, it is best not to use your credit cards for at least ninety (90) days prior to filing. If you wait to file for more than 90 days after last using your credit card and you have not abused the use of your credit cards, then all of your credit card debt will be dischargeable.
Credit card companies are well aware of the rules in bankruptcy so you should not hear from them after you file your petition if you are the honest but unfortunate debtor.
Chapter 13 Bankruptcy Effects on Credit Card Debt
In 2005, credit card companies pushed to change the bankruptcy laws and were successful with the passing of The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. This new law makes it more difficult to file for Chapter 7 bankruptcy if you earn more than the state median income for your state.
If you do have to file for Chapter 13 bankruptcy, then you have to do a Means Test, which will determine how much disposable income you have per month. You then have to apply your disposable income to your unsecured debt, which includes credit card debt, over a sixty (60) month period. If you have no disable income, then you do not have to pay back any of your credit card debt. However, if you have a large amount of disposable income, then you may have to pay back all of your credit card debt.
One advantage in filing Chapter 13 is that you pay back your credit card debt at zero (0%) percent interest, which makes it easier to pay back. Once you complete your plan, the remainder of your credit card debt is discharged.
There are also ways to reduce your disposable income in chapter 13 but that is a topic for a different article. The main things to take away are that in chapter 7, your credit card debt will be discharged absent an abuse of use of the cards or using the cards too close to your bankruptcy filing.
Second, in chapter 13, your disposable income will determine what percent of your credit card debt you have to pay back, which will be at zero (0%) percent interest over a sixty (60) month period.
Gross and Patterson, LLC will carefully analyze your case to make sure that you will receive maximum benefit in bankruptcy in regard to your credit card debt. Call today or fill out ourcontact form to get a free consultation today.