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Asked 2/2/2012

Does a bankruptcy wipe away your credit card debt?

 
 
 
 
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Answer 1/2 - Submitted 2/2/2012

The intent of any bankruptcy in the US is to remove all legal debts. When you go bankrupt you are, in essence, telling the world that you cannot pay your debts. You can agree to retain some debts such as the ones on your home or your automobile. Most other debts, possibly excluding state and federal tax liens, are, so to speak, erased. So, to directly answer your question, yes credit card debt is "wiped away" during this legal action. It is important to know that you should not respond to the credit card company or any company who has purchased your credit card debt after the bankruptcy. They will attempt to get you to agree to pay the old debt.

 
 

Answer 2/2 - Submitted 2/2/2012

The intent of a bankruptcy is always to see if there is any way to raise money to pay anything back to your creditors. A chapter 7 case is a liquidation and a chapter 13 case is a repayment plan. However because most people never have to liquidate anything in a chapter 7 because they are able to exempt their property, it is often considered the case where the debts are just "wiped out".

Credit card debt is almost always unsecured, meaning the lender has no security interest in any collateral. If you successfully complete your bankruptcy case, your unsecured debt is discharged and you will no longer have any obligation to pay on it. So we could say yes, your credit card debt is wiped away.

In a chapter 13 case, you would make payments under a chapter 13 plan for several months to pay back a portion of your debts. When your chapter 13 plan is completed you would also be discharged from your unsecured debts, such as credit card debt, and would no longer have any obligation to pay on it.

There are a few credit cards you need to be mindful of, however, such as Best Buy. If you open a credit card through their store, the fine print says that they do hold a security interest in the items purchased. Best Buy's attorneys will contact your bankruptcy attorney and ask if you plan to keep paying on those items or if you are going to surrender them. So keep that in mind that some store credit cards might have terms such as this.

 
 
 
 
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