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Credit Card Debt in Bankruptcy
People assume that filing for bankruptcy means all debt is written off. This isn’t the entire picture. Some debts will be erased and others repaid. Secured loans are all paid off first. So chapter 7 and chapter 13 handles credit card debt in bankruptcy a bit differently. It is important to know the differences of how credit card debt in bankruptcy is handled.
Credit Card Debt in Bankruptcy
Chapter 7
In most instances with chapter 7 cases, your credit card debts will be wiped out. In most cases, chapter 7 bankruptcies are no-asset type. That means there are no tangible assets that can be sold off to pay the creditors. There are, however, rare cases when assets are there and can be liquidated to pay off debts. The repayment, however, comes through a priority payment ranking. All secured debts and taxes get paid off first. Credit card debts are at the bottom of this list, so they are likely to be written off. Credit card debts are what is called a non-priority loan.
There are exceptions to this norm. When the debt is procured through fraud, misrepresentation or under false pretenses, then the loan becomes non-dischargeable. Also, luxury goods and cash advances fall into this category.
Chapter 13
Chapter 13 is called a reorganization bankruptcy. The reorganization plan will include a repayment schedule. The repayment schedule will make sure your debts are paid off over time. Debts are categorized as Secured, Priority Unsecured, and Unsecured. The debts will be repaid in this order.
Secured loans- Loans like mortgages on homes, auto loans, and other loans that are backed by property and assets.
Priority unsecured- Loans that are protected by bankruptcy law. The loans in this section include all your tax debts, which you will have to pay.
Unsecured loans- Other loans like credit card debts are placed here.
There are a few standout cases where even credit card loans are secured, depending on the type of loan and amount borrowed. If you are struggling with credit card debt, contact our Sacramento bankruptcy lawyers for more information.