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.
- 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.