Finding Out If Credit Card Debt Is Secured Before Filing Bankruptcy
In most cases, credit card debt is discharged as a part of a successful filing for Chapter 7 bankruptcy. If you have filed for Chapter 13 bankruptcy, then you may still have to pay on certain credit card debts under the debt reorganization that form of bankruptcy allows. Under Chapter 7, if you meet certain income and asset level requirements, unsecured debt is discharged. This is what makes bankruptcy appealing to many as it is most common that credit card debt is where the majority of their collection actions originate. There are some types of credit card debt that are secured and knowing this before you file for either type of bankruptcy will help prevent surprises.
An unsecured credit card means that no collateral, in cash or assets, is pledged to secure the debt. Securing the debt means that should you not be able to pay it, the collateral is collected and sold to regain the monies loaned. Credit card debt is a loan of money to an individual. Many people do not view it as such, but that is what a credit line is – a promised loan amount. Learn more by visiting a bankruptcy lawyer.
Some types of cards have secured credit. Secured credit means that you have promised something in value for the debt should you not be able to make cash payments. Not all secured credit card debt is obvious and you have to read the terms and conditions of your card to know if all, or a portion, of the credit line offered on that card is considered secured.
Many store credit cards have terms and conditions that declare all or part of the debt associated with that card as secured. The collateral defined is any item purchased using the card. This means that this portion of the debt is not eligible for Chapter 7 bankruptcy discharge but that the collateral must be returned to pay the debt. Some bank cards also have this clause and may define items purchased over a certain amount as collateral as well. It is not unusual for credit card debt to carry a combination of secured and unsecured debt within the limits of the one credit line on the card. If you understand what parts of your credit card debt are secured, you will be better able to make a decision as to which type of bankruptcy you should file for to avoid loss of important items.