Bankruptcy on credit cards is fairly common in the US. Every year, millions of Americans lose their jobs or experience unanticipated expenses, making it impossible for them to make minimum payments on previously incurred credit card debts without sacrificing the necessities of life, or borrowing additional money to pay older debts. Bankruptcy is a legal procedure designed to stop what might otherwise become an irreversible downward spiral. Making a bad credit card debt situation steadily worse.
The US Bankruptcy Code and Credit Card Debt
There are two Chapters of the US Bankruptcy Code that can provide bankruptcy on credit cards to individuals needing such protection. Chapter 7, often referred to as “total bankruptcy” requires liquidation of all of the petitioner’s nonexempt property, with proceeds distributed to creditors. Chapter 13 involves a court ordered restructuring of all debts, including credit card debts, allowing repayment over 3 to 5 year period.
Filing for Chapter 7 Bankruptcy protection may be particularly advantageous to qualifying individuals with very few or no nonexempt assets that could be liquidated. Chapter 13, the other hand, is a better option for individuals who do not qualify for Chapter 7, or who have substantial assets they would prefer to keep well paying off credit card debts over time.
Petitioning for Chapter 7 Bankruptcy Protection on Credit Card Debt
Filing a petition for Chapter 7 protection against collection actions by credit card companies is a long and somewhat detailed process. Petitioners for bankruptcy on credit cards may it necessary to employ the services of an attorney or a company specializing in the preparation of bankruptcy petitions. Steps in the filing process include:
- Declaring whether the petitioner is filing as an individual, jointly with a spouse, or jointly with another party, such as a business partner. If the petitioner files as an individual, protections, which may be provided by the Court will apply only to that individual. A spouse or business partner may still be fully liable for debts they incurred with the petitioner.
- Providing evidence that the petitioner has participated in an approved budget and credit counseling program within the past six months.
- Paying required fees including the $245 case filing fee, $46 miscellaneous administrative fee, and $15 trustee surcharge (unless the court agrees to waive those charges based on the petitioner’s inability to pay).
- Listing all creditors and the amounts of their claims, including any non-credit card creditors.
- Identifying the sources, amounts, and frequency of the debtor’s income.
- Providing a detailed list of all the debtor’s personal property, real estate, and other assets, including bank and investment account balances.
- Declaring which of the above listed assets the petitioner considers “exempt from seizure” under State Law or Federal Law.
- Providing a detailed list of the debtor’s monthly living expenses, including such items as food, clothing, transportation, shelter, medical costs, utilities, taxes, etc.
All of the above information must be provided on court supplied forms or schedules. In cases where there are multiple parties to the petition, the forms must include required information for all parties to the petition.
When all required information has been received, and presuming that the court determines that the petitioner meets eligibility requirements, including the “Means Test” requirements as set forth in Chapter 7 of the US Bankruptcy Code, the court will issue an order stopping all credit card company collection activities. That order may not apply to certain other kinds of debt owed by the petitioner.
A Bankruptcy Court Trustee will then schedule a “Creditor Meeting“, normally within 40 days of the completion of the filing. All named creditors are invited to the meeting, as are other individuals not named in the filing, who believe they have a legitimate claim against the petitioner. It is important that the petitioner clearly understand the procedures involved in the Creditor Meeting, which include:
- The Court Trustee will place the petition or petitioners under oath.
- The Court Trustee will ask a series of questions designed to ensure that all parties to the petition understand the potential consequences of having debts discharged under bankruptcy, including impacts on their credit history and credit score.
- The trustee will also ensure that the petitioners are aware of alternatives to Chapter 7 bankruptcy.
- The Court Trustee will review written information provided by the petitioner, and require the petitioner to reaffirm the accuracy of that information under oath.
- Named creditors and others who believe they have legitimate claims against the debtor are given the opportunity to challenge information provided by the petitioner, and provide their own perspective surrounding the debt owed to them.
Under certain circumstances, the trustee may declare the petition “presumptively fraudulent”, and refer the petitioner to alternate sources of relief such as bankruptcy under Chapter 13 of the Bankruptcy Code. Alternatively, the trustee may summarize the findings of the Creditor Meeting, and pass them along to the bankruptcy judge presiding over the case.
Petitioners for bankruptcy on credit cards go have only credit card debt may then be granted the relief they seek, and restart their financial lives with a clean slate.
Individual seeking bankruptcy on credit cards may find the relief they need through the Chapter 7 Bankruptcy process. It should be clear, however, that the path to that relief is not an easy one, and that the path has redundant capacity to root out fraudulent petitions.