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