Those little plastic cards can be both a blessing and a curse. If you've accrued a healthy amount of credit card debt, you may now be in deep financial trouble because of that debt. When the minimum payments each month are eating up more and more of your salary, it may time to consider a chapter 7 bankruptcy filing. The way bankruptcy treats credit card debt can be thought of as both positive and negative. Read on to learn what bankruptcy can do for a credit card debt, and how you need to be careful with credit card use before before you declare bankruptcy.
Credit Cards: An Unsecured Debt
Credit cards fall into the debt category of unsecured, meaning that there is no property (or collateral) to secure it against loss. If you fail to make your mortgage payment, you may be facing a foreclosure where the property is seized by the lender. Mortgages and auto loans are secured debts, since they are secured by property.
What this means for the chapter 7 bankruptcy filer is the assurance that their considerable credit card debt has the potential to simply disappear. Once you file for bankruptcy, you can immediately stop paying those high monthly minimums and use more of your salary for housing, food and other secured debts attached to property that is in danger of being seized. Additionally, all debt collection attempts must stop when you file your bankruptcy in federal court.
Avoiding Bankruptcy Fraud Through Credit Card Use
For those planning on declaring bankruptcy, it can be tempting to run up credit card balances right before filing. You should know, however, that there are rules that make that practice a very bad idea. That is not to say that you cannot use your cards in the time period leading up to a chapter 7 filing, but you must do so prudently and carefully to avoid getting in trouble with the creditor and with the bankruptcy court.
The Limitations on Use
The credit card company will look back at your credit card use in the months prior to a filing to evaluate the potential for abuse. Both the charges and the cash advances will be looked at, so be sure that you:
1. Don't charge more than $675.00 within 90 days of filing
2. Don't use your card to take more than $950.00 in cash advances in the 70 days prior to a filing.
The consequences for credit card misuse prior to bankruptcy depends on what was charged, when and why. You may have explain the charge or advance and you may end up having to pay that money back. Be sure to speak to a chapter 7 bankruptcy attorney about using your plastic before you file.Share