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Bankruptcy Law Blog

Monday, November 5, 2018

Getting Rid Of Credit Card Debt

The average Alabama resident has $7,105 in credit card debt. This is a significant chunk of change, which is probably why credit card debt is one of the number one reasons people file for bankruptcy.

Unlike many other kinds of debt, credit card debt can be fully discharged, or wiped out, through the bankruptcy process. Most people who are struggling to pay off credit card debt prefer to file under Chapter 7 rather than Chapter 13 of the bankruptcy code because they want their credit card debts forgiven.

Forgive and Forget or Pay it Back?

Whether your credit card debt can be forgiven typically depends on what chapter of the bankruptcy code you file under.

A Chapter 7 bankruptcy is a clean slate bankruptcy. The courts let a Chapter 7 filer keep certain assets, but most assets are sold off and the proceeds of the sale are used to pay off debts. Whatever debts that remain are then forgiven, unless the debt is tax debt, student loan debt, or past due alimony or child support. Many filers do not have assets to sell off, and that is okay too. Creditors do not expect to get paid back if a debtor files for Chapter 7 bankruptcy.

In contrast, Chapter 13 is more focused on paying debts back than forgiving them. Under a Chapter 13 bankruptcy, the filer can decide to hold on to most of their assets instead of selling them off. The court then works with the filer and the filer’s creditors to come up with a repayment plan that will put the filer back on firm financial footing. Credit card debts are typically paid off rather than forgiven in a Chapter 13 bankruptcy.

Figuring out which chapter of the bankruptcy code to file under can be difficult because there are a lot of factors to consider, but if you don’t have a lot of assets, and most of your debt is credit card debt, Chapter 7 is probably a better option. The attorneys at our firm have lots of experience helping debtors figure out what chapter to file under, and then guiding them through the bankruptcy process.

An Exception To The Rules

It is important to note that even people who file for bankruptcy under Chapter 7 do not always have all of their credit card debts forgiven. Debt that was incurred fraudulently or after you knew you intended to file for bankruptcy may be deemed “nondischargeable.” Nondischargeable debt sticks with you and must ultimately be paid back.

The courts presume that cash advances and the purchase of luxury goods within 90 days of filing for bankruptcy is fraudulent. In the three months leading up to a bankruptcy filing is highly likely that you know you are in financial trouble, so you should not be splurging on things you don’t need or trying to hoard cash.

There is a fine line between everyday items and luxury goods. Spending money on food, clothing, and gas is generally okay, but filling your cupboards to their bursting point or buying every item of clothing you intend to wear for the next several years is a gray area.

If you have questions about how much debt you may be able to have forgiven, it is important to talk to an experienced bankruptcy attorney. Your case is different from everyone else’s, and nothing you read on the internet can tell you exactly what will happen if you file for bankruptcy.

 


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Padgett and Robertson assist clients with Bankruptcy, Personal Bankruptcy, Consumer Bankruptcy, Chapter 7 Bankruptcy, Chapter 13 Bankruptcy and The New Bankruptcy Law in Mobile, Alabama and throughout southern Alabama. Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”



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Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”