Credit Cards in Bankruptcy

Everyone has credit card debt and credit card debt is one of the most common debts in bankruptcy.  All of my clients want to know what will happen to their credit cards in bankruptcy.  First, credit cards can be discharged in bankruptcy.  A credit card debt is a a general unsecured debt in a bankruptcy.  A general unsecured debt has the lowest priority in a personal bankruptcy.  That means that most general unsecured creditors get paid nothing at all; or if they get paid, only a fraction of what they are owed.   Even though credit cards are general unsecured debts, you need to be aware of a few facts before you file bankruptcy.

  • First it’s easy to discharge credit cards.  So don’t worry that you’re going to go through a bankruptcy and still have a credit card payment.
  • You can’t leave a credit card out of a bankruptcy, even if you are paying on it.  This is because bankruptcy is an all in process.  Everything has to get listed on the petition.  If you are running a business and need a line of credit, you should talk to your bankruptcy lawyer about how to set up your case.
  • There is a small risk that part of a debt will not get discharged if you have used them too close to the time that you file bankruptcy.  This is because the Bankruptcy Code allows a creditor to pull a debt out of the bankruptyc discharge, if the debtor incurred it too closely to the time they filed.   If you have used a credit card recently, don’t worry.  A good bankruptcy lawyer can show you a couple of strategies for filing bankruptcy and getting all of your debts discharged.   This is evaluated on a case by case basis, so it’s important to tell your bankruptcy lawyer about your recent credit card usage.
  • If you are worried about discharging credit cards, don’t wait until the last minute to call a bankruptcy attorney.  The more time I have, the easier it is to develop a bankruptcy strategy for you.
  • Finally, some people swear that they will never have another credit card after they finish their bankruptcy.  I understand that completely, but a credit card is a useful financial tool.  In fact, a credit card is important to rebuilding your credit after bankruptcy.  You need to establish a positive payment history to rebuild your credit.   What you need to do is get a secured credit card with a company that will report your payments to the credit bureaus.  These companies are easy to find online.  Each month, only charge as much as you can repay.  Then each month payoff your balance in full.

The bottom line is that your credit card debt can be discharged in bankruptcy.

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