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Discharging Credit Cards in Chapter 7 Bankruptcy

Chapter 7 bankruptcy is known as the “fresh start” bankruptcy. It is designed to wipe out debts and give the debtor a new financial beginning. Chapter 7 bankruptcy can wipe out credit card debts in nearly all situations. Many of our clients who file for Chapter 7 bankruptcy have large amounts of credit card debt.

Credit card debts are considered unsecured debts. An unsecured debt is a debt that is not attached to any property that can be seized by a creditor because of a lien if the debt is not paid. Therefore, credit card debts are simply wiped out in one’s bankruptcy discharge.

It is easy for credit card bills to rack up because of high-interest rates. Nowadays, credit card APR interest rates may be as high as 30%. That means that if someone owes $2,000 and makes no payment for one month, the debtor will now owe $2,600 because of the interest on unpaid debts. As one can imagine, interest can increase debts to an unsustainable level that cannot be paid back. Many of our clients face this problem when their credit card debt keeps growing, and they need financial assistance. Chapter 7 bankruptcy can cancel out these payments. There are, however, a few reasons why not all credit card debt might be discharged.

  • If someone makes a luxury purchase with his or her credit card shortly before the bankruptcy filing, then the court may not discharge that debt. In the court’s eyes, a debtor has made a purchase that one does not intend on paying back, but rather plans to include it in their bankruptcy, and thus abusing the privileges of bankruptcy. A luxury purchase may include expensive jewelry, watches or electronics. Luxury purchases may be considered fraud in the eyes of the bankruptcy court.
  • A large cash advantage also may not be a dischargeable expense. If the court finds out that the debtor was planning on filing for bankruptcy, and took out money from their credit card and was planning to get the expense discharged, then the court may find that this is an abusive of bankruptcy privileges. If you are concerned that you have a charge on your credit card that the court may not discharge, then it is especially important to speak with a qualified bankruptcy lawyer about your options.

Jayson Lutzky is a bankruptcy lawyer offering free initial in-office consultations. He has over 34 years of legal experience in New York State and is committed to personally helping his clients. He has a conveniently located office in the Bronx. To learn more about Mr. Lutzky’s practice, visit www.MyNewYorkCityLawyer.com. Call 718-329-9500 to schedule your free consultation. Saturday appointments are available.