Credit Card Debt In Chapter 7 Bankruptcy

The goal of the now several years old Bankruptcy Law is to shift filers from Chapter 7 bankruptcy, in which consumer debt is typically liquidated, to Chapter 13 bankruptcy, which requires that you repay secured and much unsecured debt within five years.

Major changes under the new law:

• “Means Test” Puts the burden is on the filer to show that your use of bankruptcy relief isn’t “abusive.” The means test calculates your monthly income minus certain allowable expenses. If the balance left is more than about $100 a month, the filing is considered abusive, unless you can show “special circumstances.” If you failed the “means test,” it’s Chapter 13 for you.

• Expense allowances Guidelines for allowable expenses are set by the IRS and are stingy.

• Residency requirements There are both federal and state bankruptcy laws and some state laws are more favorable than others. But the new law aims to discourage “shopping around” for the best deal, so you can’t file in a more favorable state unless you’ve lived there for at least two years.

• Credit counseling You must take an approved credit counseling course within 180 days (six months) of filing a petition. Not Free

• Paperwork Consumers will have to provide a lot more documentation to show that bankruptcy is warranted. Some of the proof debtors must provide: a list of secured and unsecured creditors; documentation of credit counseling; monthly income and expenses; assets and liabilities; most recent tax return and any earlier returns that were not filed; pay stubs and photo ID.

• Legal fees Many lawyers are getting out of bankruptcy practice, not wanting to put their careers on the line for filing cases that don’t pay very well anyway. The burden on bankruptcy lawyers is at least doubled under the new statute. Besides merely gathering the facts from a client, an attorney must now “certify” that a client’s numbers are accurate. If they aren’t, both lawyer and client could face sanctions.

• Filing fee changes Charges vary from state to state, but in general, you’ll pay more for filing under Chapter 7 and slightly less under Chapter 13.

• Valuation increases The law provides that “collateral,” which includes your furniture, clothes, autos and electronics, be assessed at a higher value than under the previous law.

• File again. The new law provides that, under Chapter 7, eight years must elapse before you can re-file. If you go for Chapter 13 after a Chapter 7, you must wait four years. Going from one Chapter 13 to another, two years must elapse.

• No loading up on last minute luxuries The new law requires that any luxury items purchased within 60 days of filing for bankruptcy be repaid in full. Likewise for cash advances and services worth more than $500.

• Student loans Under the old law, you couldn’t get rid of student loans backed by the government or a non-profit. This protection has been extended to private lenders as well.

Some Comfort

· Your house, retirement plans and college savings are exempt

· The court can reduce your principal debt by up to 20% on unsecured debt settlements

· Child support obligation jumps ahead of any other unsecured claim except administrative or legal fees. Also, there are special provisions for a few groups: military personnel on active duty, low-income veterans and people with severe medical disabilities.

BUT THERE IS MORE! The Challenges – debt was fraudulently charged

Credit Card Debt In Chapter 7 Bankruptcy

Cathy Moran
Credit card companies sometimes challenge the discharge in bankruptcy of debt owed to them, by claiming that the debt was fraudulently charged by:

Submitting a fraudulent application
Using the card without any intent to repay the debt

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