For consumers who are looking for debt relief, filing for bankruptcy could be the best way to discharge credit card debt and start over with a clean slate. When considering filing for bankruptcy, consumers should decide which type to file based on their specific situation. This article looks at the differences between Chapters 7 and 13 then identifies whether credit card debt is dischargeable. As with any legal dispute, speaking with an attorney should be a top priority.
Breach of Contract
When a creditor decides to take further action against a debtor, they file a breach of contract suit in a court of law. If a debtor is served but chooses not to respond, a default judgment will be entered against them. The amount that the creditor claims is owed is often the automatic default judgment. The debtor can respond to the suit in the allotted time and potentially reduce their liability depending on their situation. An attorney consultation can help you choose how to respond, and whether filing for bankruptcy is right for your situation.
Which Chapter To File
The two most common types of bankruptcy filed by consumers are Chapter 7 and Chapter 13. Chapter 7 requires that the disposable income is below the required limit and is often called liquidation bankruptcy. This type of bankruptcy requires some property to be liquidated to pay creditors, but most debtors can keep most of their property. Some property is exempt from this activity, such as the home of the debtor and retirement savings. If you do not have any property that can be sold, the creditor will receive no payment. This process takes a few months to complete from start to finish and discharges most or all debts.
Chapter 13 requires a higher amount of income because the filer will enter a three or five-year payment arrangement which pays off creditors. This type also sets a cap limit on the total of debts owed: $419,275 of Unsecured Debt or $1,257,850 of Secured Debt. The debts are totaled and the payment plan set. The process is complete when all payments have been made in full and all or most debts will be discharged, within the required limits.
Once bankruptcy is filed, the court will place an automatic stay. This stops creditors from initiating or continuing collection activities. A hold is placed on any suits pending and the debt will be discharged with the rest. A creditor can ask the courts to lift an automatic stay, most do not have enough legal grounds to warrant lifting the stay.
Discharging of Debt
Both of these types of bankruptcy will discharge credit card debt as long as it was not acquired due to fraudulent activities or false pretenses. Other types of debt are dischargeable too, such as:
- medical bills
- utility bills
- back rent/ lease payments
- membership fees (such as gym memberships)
- personal/payday loans
- mortgages/auto loans/secured debt (property must be returned)
Some debts are not dischargeable, such as:
- child support/ alimony
- criminal penalties/ fines/ restitution
- some tax obligations
- student loans
- debt acquired through fraud/ false pretense/ misrepresentation
- willful/ malicious injury caused by the debtor
- death/injury due to DUI
If a lien has been placed on your property, it must be removed by filing a separate motion with the court because it is not automatically removed when the debt is paid.
If you are drowning in debt, it is in your best interest to speak with a legal professional who can help you decide on the right options for your situation. If you are in Northern Texas, contact us Warren and Migliaccio, LLP Attorneys At Law, we want to be your debt defense attorneys.