Credit card debt is one of the most common forms of debt in chapter 7 bankruptcy. Many individuals in financial hardship turn to credit cards to finance daily living expenses, and at times that balance can grow beyond their ability to pay. When individuals start making minimum payments on credit card balances they can never fully repay, bankruptcy can be an effective debt relief tool. In chapter 7 bankruptcy credit card debt can be eliminated in a few months as long as assets can be protected.
Credit Card Lawsuits
Some clients not only have credit card debt, but they are also facing a lawsuit as a result of credit card debt. In that case, the question posed by the client is “can I still eliminate my credit card debt in bankruptcy?”
Bankruptcy can eliminate credit card debt and judgments for debt that is dischargeable in bankruptcy. Since credit card debt is general unsecured debt that does not fall under the nondischargeable debts listed in 11 USC Section 523, any judgment from a credit card lawsuit is dischargeable in bankruptcy. In other words, bankruptcy can eliminate credit card debt even if a lawsuit has been filed or resulted in a judgment.
The filing of a bankruptcy petition creates an automatic injunction against collection activities, including the continuation of a credit card lawsuit or collection on a credit card judgment. Therefore, if you are served with a credit card lawsuit the act of filing a bankruptcy petition will stop the credit card lawsuit from progressing.
What About Credit Card Debt For Attorney Fees
Some people with credit card debt owe their substantial balances due to attorney fees. Divorce lawyers that accept payment by credit card can leave clients with thousands in credit card balances. However, as long as the client has not committed credit card fraud which is usually established by filing bankruptcy shortly after incurring the debt, the credit card debt from paying attorney fees are generally dischargeable in bankruptcy. Of course, don’t pay your bankruptcy attorney by credit card as that will very likely be fraudulent. In fact, most credit card processing agreements with merchants prohibit payment for bankruptcy services.