We are bankruptcy attorneys located in Middletown, Ohio. We specialize in Chapter 7 bankruptcy and Chapter 13 bankruptcy.
For many people, credit card debt that is at the point where you can’t manage it any longer, is a big factor in their decision to file for Chapter 7 or Chapter 13 bankruptcy. Before you file, you must make sure you understand how Chapter 7 and Chapter 13 bankruptcy handles credit card debt. In most cases, it will be wiped out at the end of your bankruptcy but not always.
Chapter 7 bankruptcy, debtors are usually able to discharge credit card debts. Generally, credit card debts are treated like other unsecured claims in Chapter 7 cases. The Chapter 7 trustee may pay some of your credit card debt, along with other unsecured claims. In most cases, your obligation to pay the balance will be discharged upon successful completion of the case.
Credit card companies are included among your creditors when you file bankruptcy under Chapter 7. Most Chapter 7 bankruptcies are no asset cases. In a no asset case, there is no property in the estate that can be liquidated to raise money to pay creditors. In cases where there are assets, any money that can be raised is paid to creditors in order of priority.
Credit card debts, like most other unsecured obligations, are considered to be non priority claims. It is relatively rare for non priority creditors to receive any payment in Chapter 7 cases. Any payments that can be made are distributed so that each unsecured creditor (including any credit card company) receives the same percentage of its claim usually nothing, or at most pennies on the dollar.
Many people file for Chapter 7 bankruptcy in order to discharge debts and get a fresh start with their financial lives. Most credit card debts are dischargeable through Chapter 7, which means you will not owe them once you complete the bankruptcy.
Chapter 13 bankruptcy is a reorganization bankruptcy. When you file Chapter 13, you propose a repayment plan that repays your creditors over a period of three to five years. Some are paid in full, some in part, and some not at all. This depends on what type of priority bankruptcy law gives the type of debt. Credit cards generally have the lowest priority in a Chapter 13 plan.
Bankruptcy law sorts your debts into different classes. The three main debt classifications are general unsecured debt, priority unsecured debt, and secured debt.
Secured debt includes debts such as car loans and any other loans that are secured by property. A loan is secured by property if you pledged property in exchange for obtaining the loan. If you default on a secured loan, the lender can take the property to satisfy the debt. That’s why if you don’t make your car payment, the lender will repossess it. If you don’t make your house payment, the lender will foreclose. Different rules apply to different secured debts in Chapter 13, but generally, if you want to keep the property that secures the loan, you must pay the loan in full.
Credit card debts are general unsecured debts. General unsecured debts are at the bottom. How much they get paid depends upon a number of factors, but usually Chapter 13 debtors do not have to pay their credit card debts in full. Some credit card debt is secured. If it is, the payment priority will be that of a secured debt.
Running up your credit card balances when you intend to file bankruptcy is a fairly clear case of intent to defraud your creditors. The credit card company can file a non dischargeability complaint in your bankruptcy case, asking the court to declare the debt nondischargeable.
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Contact our office today in Eastgate, Ohio for your free consultation to see if bankruptcy will give you the financial relief you are looking for.