Like many in Nashville, and throughout Tennessee, you may have credit card debt. Whether these debts are due to overspending, an unexpected situation or emergency, or any other number of factors, you may have considered filing for bankruptcy. At Rothschild & Ausbrooks, PLLC, people often ask us about the effect of bankruptcy on credit card debts. In this post, we will comment on how credit card debts are handled during bankruptcy cases.
In general, your debts may be classified as secured or unsecured for the purposes of a bankruptcy. Secured debts are those that are backed by some type of collateral, mortgage or lien. These include home and auto loans. Unsecured debts, on the other hand, are those for which credit was extended based on a creditor’s assessment of your ability to repay them in the future. Credit card balances typically fall into this category. The manner in which these debts are handled during a bankruptcy filing depends on which type of bankruptcy you have declared, Chapter 7 or Chapter 13.
When you file for Chapter 7 bankruptcy in Tennessee, and elsewhere, some of your assets may be sold and the profits applied towards certain specified debts. Other debts, however, are discharged. According to the United States Courts, a Chapter 7 discharge is a permanent court order that releases you from your obligation to pay a debt. This means that you are no longer liable for the amount of the debt and your creditor cannot make any further collection attempts. Under most circumstances, your credit card balances, as well as any overdue or late fees, are considered a dischargeable debt.
After filing for Chapter 13 bankruptcy, you will pay back all, or a portion, of your debts through a repayment plan. For the purposes of these plans, some debts are given priority over others. Priority debts, then, are the first to be accounted for in the repayment plan. In general, credit card debts have a very low priority. This means that, depending on the circumstances, you could be required to pay back all, a portion or none of your credit card debts through a Chapter 13 bankruptcy filing. The portion of these debts that you do not pay back is generally discharged.
For more information about credit card debt, please visit our debt in bankruptcy page.