Credit Cards in a Raleigh, NC Bankruptcy
Types of Credit Cards
Discharge Credit card debt? Most credit card debt, whether the card is issued by a bank, gasoline company, or department store, is unsecured and dischargeable. Some department stores retain a security interest in all items being purchased using the store credit card, making those secured debts rather than the “regular” unsecured credit card debts subject to discharge.
Keeping a Credit Card through a North Carolina Bankruptcy
The only time you can exclude a credit card in a bankruptcy is when the balance is $0.00 and you have paid less than $600 to the creditor in the last 90 days. If you have such a card, you don’t need to list it because it is not a debt. If the credit card company discovers you have filed bankruptcy, the best you can hope for is a raise in the card’s interest rate. There is a good chance they will cancel the card.
Having a credit card is good way to build credit, but there are other ways that are much faster and cheaper. The easiest way is to take $500 and get a secured loan from a bank for $500. Then do it again 2-3 more times. Have the payments be made from the collateral (the $500 you already deposited), and you just pay interest. In 3-4 months you can close the accounts, and now you have 3-4 banks reporting your timely payments on loans.
Evaluating Credit Card Discharge Issues While credit cards are generally unsecured and therefore dischargeable in a chapter 7 straight bankruptcy, there are exceptions.
- Credit card issuers occasionally 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 accepted 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:
- The application submitted to get the card was fraudulent
- The card was used fraudulently pursuant to 11 USC. 523(a)(2).
This happens very rarely.
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:
- Increase in credit card usage shortly before filing
- Newly issued card
- Large cash advances in months before filing
- Use of card for travel or vacations
- Pattern of borrowing on one card to make payments on others
- Exceeding credit limit
- Using card when unemployed or without reasonable belief that the debt can be repaid
- Large balance at filing
- 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.
This happens very rarely.
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:
- Wait to file bankruptcy so as to put more time and/or more payments on the account between usage and filing.
- Settle with any objecting creditor, if and when they file a non-dischargeability action
- If non-dischargeability actions are filed, convert the case to Chapter 13.
- Contest the suit at trial: if you win, you may recover your attorney’s fees incurred to defend the action.
- File Chapter 13 where even debts that may have been incurred fraudulently are dischargeable.