Credit card debt is a common reason people file for personal bankruptcy. As unsecured, non-priority debts, credit card balances are typically eligible for a discharge.
People who have fallen behind on their payments due to increasing costs or a loss of income can avoid financially-damaging court judgments and other aggressive collection efforts by discharging credit card balances. Many people assume that any amount owed to a credit card company is eligible for a discharge. Contrary to that assumption, there are some limitations on credit card discharges during a personal bankruptcy.
When might credit card balances persist post-bankruptcy?
Sometimes, a filer fails to include specific debts in their bankruptcy paperwork. Debts not included in the paperwork may remain valid even after the discharge of other qualifying debts.
The spending habits of the filer can also influence eligibility for a complete credit card debt discharge. In cases where lenders can prove that an individual made multiple luxury purchases shortly before filing for bankruptcy, that unnecessary spending could affect how much of the balance the filer can actually discharge.
Additionally, using a credit card in the days immediately before a bankruptcy can raise questions about fraud. If the credit card lender can show that a person used their credit without a good faith intent to repay those charges, the courts may agree to exclude part of the balance from the bankruptcy discharge or to exclude the entire account in more serious cases.
Learning more about the rules that apply during personal bankruptcy can help people with credit card debts maximize relief derived from a bankruptcy filing. People who limit their credit card use in the weeks before they file bankruptcy paperwork often have less risk of lenders contesting the inclusion of specific debts in their bankruptcy.
