Are Credit Cards Dischargeable?

For some, emergencies that create additional bills, medical emergencies, or even loss of employment may result in the inability to pay off credit cards. When a household has several credit cards with balances, the situation can quickly get out of control. Are credit cards dischargeable in chapter 7 or chapter 13 bankruptcy?

Recently, a study conducted by CardHub, a personal finance website, indicated that in 2014 Americans added $57 billion in new credit card debt, a debt that currently stands at $831 billion in the U.S. Over the last six years (since 2009), credit card debt has continued to rise across the nation. As experienced Kansas City bankruptcy attorneys, we know that credit cards are one of the leading causes of bankruptcy. While they do serve a purpose, credit cards can and often do leave individuals and families facing financial hardship as it becomes difficult or impossible to make credit card payments. High interest rates only compound the problem.

What happens if credit card debt goes into default?

The consequences of defaulted credit card debt can be severe.  For starters, defaulted credit card debt often results in the creditor filing a lawsuit. Eventually the lawsuit will result in a judgment. With a judgment, your creditor can garnish your wages.

Further, when one defaults on credit cards, the negative monthly reporting can severely damage your credit rating. Ultimately, a damaged or poor credit rating can affect almost every aspect of your life. For example:

  • You may not be eligible for a loan to purchase a home, car, or other large purchase. Applications are frequently rejected by banks or financial institutions; in some cases, you may have to obtain a loan with a high interest rate, which only adds to your financial burden.
  • Poor credit may result in your having to pay higher insurance premiums, or more in deposits when having utilities turned on.
  • A low credit score may result in an applicant being turned down for financing of a mobile phone.
  • It can be difficult to obtain a place to live when your credit rating is damaged, whether in a rental home, apartment, or trying to secure a mortgage on a home.
  • While not as common, some employers conduct credit checks when considering an individual for employment; some will not hire someone with a poor credit rating.

Can Credit Card Debt be Discharged in Bankruptcy?

Yes. Generally, most credit card debt is dischargeable in both Chapter 7 and Chapter 13 bankruptcy. It is important to note there are certain types of credit cards, such as Nebraska Furniture Mart, that may be secured debt.  Secured debt is not dischargeable without surrendering the property associated with the debt. Therefore, Chapter 13 bankruptcy may be a good option depending on the assets involved and your particular situation. In this type of bankruptcy, monthly payments on credit card debt that is secured can be reduced to a more affordable amount. Once the agreed-upon amount is paid, the debt is discharged.

Bankruptcy can be a complicated topic for many who find themselves facing financial hardship due to overwhelming credit card debt. At Patton Knipp & Dean, our Kansas City bankruptcy lawyers are dedicated to helping you find the best solution for paying or discharging credit card debt. Call or email to setup a free consultation in our Independence, Lenexa or Gladstone offices today.