Is Credit Card Debt Discharged in Chapter 7?
Navigate the complexities of credit card debt in Chapter 7 bankruptcy. Understand its dischargeability and the procedural journey.
A Chapter 7 bankruptcy filing offers individuals a path to a fresh financial start by eliminating certain debts. Its primary goal is to discharge qualifying debts, freeing individuals from repayment. This allows debtors to reorganize their finances and begin rebuilding their economic standing.
Credit Card Debt and Chapter 7 Discharge
Credit card debt is generally considered unsecured debt because it is not backed by collateral, such as a car or a home. This makes credit card debt typically dischargeable in Chapter 7. When a debt is “discharged,” the debtor is no longer personally liable for repayment, and creditors are legally prohibited from attempting to collect it.
The discharge of credit card debt in Chapter 7 provides a comprehensive resolution for individuals struggling with high-interest, revolving credit balances. Consequently, credit card companies are among the primary creditors impacted by a Chapter 7 discharge.
Most consumer credit card balances, personal loans, and medical bills fall into the category of unsecured, dischargeable debts. This allows much common household debt to be eliminated through Chapter 7. Discharging these debts can substantially reduce an individual’s financial burden, allowing them to allocate resources toward necessary living expenses and future financial stability.
Circumstances Preventing Credit Card Debt Discharge
While many credit card debts are dischargeable, certain circumstances prevent their elimination. Debts incurred through fraudulent actions are generally not dischargeable. This includes instances where a debtor made charges with no intent to repay, particularly if these charges occurred shortly before the bankruptcy filing. Creditors can object to the discharge of such debts, requiring the debtor to demonstrate the legitimacy of the charges.
Rules apply to recent luxury purchases and cash advances. Charges for luxury goods or services totaling $900 or more from a single creditor within 90 days before filing may be presumed non-dischargeable. Cash advances exceeding $1,250 from an open-end credit agreement within 70 days before filing can also be deemed non-dischargeable. This presumption of fraud shifts the burden to the debtor to prove that the charges were not fraudulent.
Another situation where credit card debt might not be discharged involves a reaffirmation agreement. This is a voluntary agreement between a debtor and a creditor to continue paying a debt that would otherwise be discharged. Debtors typically enter into reaffirmation agreements for secured debts, such as car loans, to keep the collateral. However, if a debtor reaffirms a credit card debt, they voluntarily waive the discharge of that specific obligation, remaining personally liable for its repayment.
The Chapter 7 Discharge Process
The Chapter 7 bankruptcy process begins with the filing of a petition with the bankruptcy court. This initiates the case and immediately triggers an automatic stay. The automatic stay is a legal injunction that temporarily prevents most creditors from taking collection actions against the debtor, including lawsuits, repossessions, and wage garnishments.
Approximately 20 to 60 days after the petition is filed, a mandatory meeting of creditors, known as the 341 meeting, occurs. During this meeting, the debtor appears before the appointed bankruptcy trustee and answers questions under oath regarding their financial affairs and petition information. Creditors are permitted to attend and ask questions, though they rarely do.
The bankruptcy trustee, appointed to administer the case, reviews the debtor’s financial documents and identifies any non-exempt assets that can be liquidated to repay creditors. The trustee examines the debtor at the 341 meeting and, if applicable, oversees the sale of non-exempt property. Most Chapter 7 cases are “no-asset” cases, meaning there is no non-exempt property to sell.
Before receiving a discharge, debtors must complete a course in personal financial management. This course must be finished after the bankruptcy petition is filed, typically within 60 days after the first scheduled 341 meeting. If this course is not completed and the certificate filed with the court, the debtor may not receive a discharge.
The final step is the issuance of the discharge order by the bankruptcy court. If no objections are raised and all requirements are met, the discharge order is typically granted within 60 to 90 days after the 341 meeting, or approximately four to six months from the initial filing date. This order legally releases the debtor from personal liability for all dischargeable debts, including eligible credit card debt.