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Discharge Credit Cards

Credit Cards in a Raleigh, NC Bankruptcy

Types of Credit Cards

Can you discharge credit card debt? Most credit card debt, whether the card is issued by a bank, gasoline company, or department store, is unsecured and can be discharged. However, it’s important to note that some department stores may retain a security interest in items purchased with their store credit card, making those debts secured and subject to discharge. 

Keeping a Credit Card through a North Carolina Bankruptcy

The only instance in which a credit card can be excluded from bankruptcy proceedings is if the balance is $0.00 and you have paid less than $600 to the creditor within the past 90 days. In such a case, there is no need to list the card as it does not qualify as a debt. However, it is important to note that should the credit card company learn of your bankruptcy filing, they may opt to increase the card’s interest rate or even cancel it altogether.

Having a credit card is one way to establish credit, but there are alternative methods that are faster and more cost-effective. One such approach is obtaining a $500 secured loan from a bank and repeating the process 2-3 times. By ensuring that the payments are covered by the collateral (the $500 already deposited), you only need to pay the interest. After 3-4 months, you can close the accounts and benefit from having 3-4 banks reporting your punctual loan repayments.

Evaluating Credit Card Discharge Issues While credit cards are generally unsecured and therefore dischargeable in a chapter 7 straight bankruptcy, there are exceptions.

  1. 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.
  2. This is sometimes called a non-dischargeability action.
  3. 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:

  1. Increase in credit card usage shortly before filing
  2. Newly issued card
  3. Large cash advances in months before filing
  4. Use of card for travel or vacations
  5. Pattern of borrowing on one card to make payments on others
  6. Exceeding credit limit
  7. Using card when unemployed or without reasonable belief that the debt can be repaid
  8. Large balance at filing
  9. 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:

  1. Wait to file bankruptcy so as to put more time and/or more payments on the account between usage and filing.
  2. Settle with any objecting creditor, if and when they file a non-dischargeability action
  3. If non-dischargeability actions are filed, convert the case to Chapter 13.
  4. Contest the suit at trial: if you win, you may recover your attorney’s fees incurred to defend the action.
  5. File Chapter 13 where even debts that may have been incurred fraudulently are dischargeable.

But remember, this happens very rarely. In the vast majority of cases, the credit card debt is discharged.