How Bankruptcy Eliminates Credit Card Debt

Individuals who seek relief from debts under the United States Bankruptcy code usually file bankruptcy under chapter 7 of the bankruptcy code or chapter 13.  A chapter 7 is considered a no asset case.  A debtor with regular income usually files a chapter 13.

Similarities Between Chapter 7 and 13

Regardless of which chapter a debtor files in bankruptcy there are common aspects of bankruptcy that apply to both chapters.  Creditors are classified in the same manner in either chapter. 

• Secured creditors are those creditors that have a lien on some property of the debtor like a house or a car.
• Priority creditors are those creditors whose debts the bankruptcy rules indicate have a priority for payment before general unsecured creditors.  Debts in the category include child support, alimony, and case trustee fees.
• General unsecured creditors are creditors who have not secured their claim for repayment by holding a lien on property.  These creditors have advanced funds to debtors based solely on their assessment of the debtor’s ability to pay.  Debts in this category include credit cards and personal loans.  A general unsecured creditor is the last creditor to be paid if there are enough funds in the bankruptcy.  If there are any funds to pay general unsecured creditors, they rarely get the full value of the debt.

Discharge in Bankruptcy

Credit card debt is eliminated in bankruptcy through the discharge of debts.  A discharge releases a Debtor from personal liability for certain debts known as dischargeable debts and prevents the Creditors owed those debts from taking any action against the debtor to collect the debts.

• Chapter 7 – the debtor usually receives the discharge within four months of filing the bankruptcy petition. 
• Chapter 13 — the debtor does not receive the discharge from debts until the Chapter 13 plan has been completed.  This   can be 3 to 5 years after filing the bankruptcy depending on the length of the repayment plan.  Debtors can request a hardship discharge if  for some reason beyond their control they cannot complete the plan.  Chapter 13 bankruptcies can also be converted to a chapter 7.

Talk to a Bankruptcy Lawyer First

A lawyer experienced in bankruptcy law can of great help in filing the required petitions and statements.  Additionally a bankruptcy will advise you which chapter of bankruptcy will provide you with the best debt relief and the fresh start that bankruptcy provides.