Options for Dealing with Credit Card Debt

By: Jamie L. Harris

If you are dealing with significant credit card debt, filing a personal Chapter 7 or Chapter 13 bankruptcy may be a viable option for addressing credit cards if you are eligible for those chapters.  In a Chapter 7 bankruptcy, the debt is listed and discharged upon entry of your discharge; however, please note that not all credit card is discharged in bankruptcy. If you have taken recent cash advances or made luxury purchases, the debt may not be dischargeable. Section 523 (a)(2)(C) of the Bankruptcy Code deals with  luxury goods and cash advances. Specifically, with consumer debts owed to a single creditor in excess of $675 incurred within 90 days of the filing of the bankruptcy petition are “presumed nondischargeable.” Likewise, obligations to pay cash advances of $950 obtained within 70 days of the bankruptcy filing are also “presumed to be nondischargeable”. Hence, if you are a consumer looking at bankruptcy as a means of addressing credit card debt, limit or cease use of credit cards prior to filing to avoid nondischargeability issues. After filing for bankruptcy, vendors will typically terminate your credit card services even if the credit card has a zero balance.

For many individuals that are looking to avoid filing for bankruptcy relief, there are a number of other options for dealing with credit card debt.  Sometimes, the credit card company may allow you to not make a payment for a period of time or make a reduced payment for a limited period of time.  Frequently, credit card companies may settle for a lump sum reduced payoff on the balance or accept payments over time. Please note that depending on the amount of credit card debt forgiven by the credit card company, you may have taxable 1099 income for the debt forgiveness. If you are exploring consolidation of credit card debt, nonprofit agencies are preferable to use.  Be cautious of the fees you are paying in these programs and carefully read all disclosures and agreements. If you are exploring paying off credit card debt with a home equity line, be aware you are creating debt that is secured by a mortgage on your home or other property and this is the type of debt you would likely want to reaffirm in a bankruptcy proceeding. This would differ credit card debt which is typically discharged as unsecured debt in bankruptcy proceedings.

About DelCotto Law Group

DelCotto Law Group is Kentucky’s asset protection law firm known for its commitment to the lifetime success of its clients. With offices located in Lexington, Louisville and Danville, DLG serves Kentuckians with complicated financial matters, especially in the areas of bankruptcy, complex litigation, and estate planning. For more information about filing bankruptcy or DelCotto Law Group, please call (859) 231-5800 or email info@dlgfirm.com.

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