Wipe Out Credit Card Debt

Credit card debt can be totally eliminated in bankruptcy. It is part of a class of debt called “general unsecured debt”, which means it is last in line to be paid if creditors get anything in the bankruptcy. In most Chapter 7 cases, credit cards do not receive anything because no property is taken from the debtor to pay them. In Chapter 13 cases, they receive pennies on the dollar based on how much the debtor can afford to pay through the plan.

Some lenders will “cross collateralize” credit cards. That means they secure the credit card with a car or some other collateral. This is more common with credit unions. If you have a car loan or other kind of account with a lender and you took the credit card out later, you should make sure you did not cross collateralize the loan before you file bankruptcy. If so, you either have to pay off the credit card to keep the car or find some way of dealing with it through bankruptcy, such as a cram down in Chapter 13 or a redemption in Chapter 7.

Most credit card debt is totally unsecured. Even if payments are set up to come out of a bank account or come out of a pay check automatically, they can be totally wiped out. It does not matter if you are current with the payments, a year in default or in the middle of a garnishment; credit cards are almost always dischargeable.

To be excluded from the discharge, a credit card company has to prove that the debtor committed fraud when he or she made the charges. That means having to show that the debtor did not intend to pay back the charges, usually be showing that the charges were made in anticipation of bankruptcy. This is a hard case to prove, though there is a presumption of fraud if more than $500 was charged for luxuries or $750 in cash advances within 90 days of filing bankruptcy. The case is based the circumstances surrounding the charges, things like: how much they were, what kind of purchases, whether the debtor was in deep financial trouble already and whether any payments were made after the charges. A few minor charges for necessities usually do not draw any attention. The credit card company has to file an adversarial proceeding to prove fraud. This is an expensive and risky law suit and it is only worth while when there is a lot of money involved.

Contact the experienced bankruptcy lawyers in Tacoma, Washington for more information on wiping out your credit card debt.