Many Americans have some amount of credit card debt. In fact, the average household in the United States has around $15,000 in credit card debt. The convenience of credit cards is necessary in our modern world, but if you don’t stay on top of things debt can quickly spiral out of control. If things have gotten too overwhelming and you are struggling to repay your creditors, it might be time to think about credit card bankruptcy as a way to get out from under the mountain of debt weighing you down.
Understanding Credit Card Bankruptcy
The most prevalent type of bankruptcy for consumers is Chapter 7 bankruptcy. Under the U.S. Constitution, individuals have to the option of pursuing bankruptcy as a means of relieving their debt to creditors. Chapter 7 allows an individual to have their unsecured debts discharged while their liquid assets, such as jewelry or a checking account, are liquidated in order to repay creditors some portion of the money owed. Examples of unsecured debts include medical bills and payday loans as well as credit card debts.
When you file for bankruptcy, you will typically obtain an “automatic stay” which means all attempts from the credit collection agencies and other creditors to collect on your debts must be put on hold. Harassing phone calls and letters will cease, wage garnishments will stop and any lawsuits or repossession actions on the part of creditors are halted. They also cannot bring new lawsuits against you during this time.
Nondischargeable Debt in a Credit Card Bankruptcy
While a vast majority of credit card debts is dischargeable when you file for bankruptcy, there are a few situations where you will not be allowed to do this. A balance incurred due to actual fraud, false pretenses, or a false misrepresentation will be considered nondischargeable. The exceptions include:
- Luxury Goods – Using a credit card to buy more than $675 of luxury goods or services within 90 days of filing for bankruptcy is considered nondischargeable and presumed to be made under false pretenses. Luxury goods and services are those that are not considered necessary for the support of yourself or any dependents you have.
- Cash Advances – Cash advances on credit cards totaling more than $950 contracted within 70 days of filing bankruptcy are assumed to be done for fraudulent reasons.
The reason these charges are presumed to be fraudulent or done under false pretenses is to discourage people from incurring additional debt just to have it all forgiven in Chapter 7 bankruptcy.
Qualifying for Bankruptcy
If you have decided to pursue bankruptcy as a means of relieving credit card debt there are a few things that need to happen.
- You may need to pass the New Jersey means test. This test is only required for those whose income is above the state median for your household size.
- You must also receive credit counseling from an approved credit counseling agency. You can find out more information on U.S. Trustee Program’s website.
It is important to seek a consultation with an experienced bankruptcy attorney to determine whether credit card bankruptcy is the best course of action for you. The NJ bankruptcy attorneys at Schneider Freiberger, P.C. can help you understand your options regarding bankruptcy in a timely and cost effective manner.