Does It Matter, For Bankruptcy Purposes, How the Credit Cards Were Used?

19 Apr Does It Matter, For Bankruptcy Purposes, How the Credit Cards Were Used?

Bankruptcy deals with secured and unsecured debts.  Credit card bills are generally unsecured, unless the card was issued by a specific store with a properly executed security agreement.

Debts owed on most credit cards, like Visa or MasterCard, are almost always unsecured.  That means they will simply be discharged in a Chapter 7 bankruptcy.  And it doesn’t matter if you used the card for household goods or business expenses.  Of course, if you use a credit card on the eve of filing for bankruptcy or at a time when you know you were going to have to file, you might find that such use is considered fraudulent and therefore not dischargeable.

Typical of secured cards are those from Best Buy or Circuit City.  Electronic companies tend to securitize your use of the card with high cost purchases, such as a computer.  That can mean that in a Chapter 7 bankruptcy, where your credit cards are being discharged, you might have to give back the computer or keep making the payments.  Often, however, the store can’t produce the necessary documentation to prove the security and you will get to keep the computer anyway and discharge the debt.

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Douglas Jacobs is a California bankruptcy attorney and partner in the Chico law firm of Jacobs, Anderson, Potter & Chaplin. Since 1988, Mr. Jacobs has taught Constitutional law and Debtor-Creditor/Bankruptcy law at the Cal Northern School of Law. He has served as Dean of Students since 1994. He is a frequent lecturer on the subject of consumer bankruptcy law, and has spoken at both state and national levels.
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