Are High-Interest Or Secured Credit Cards Treated Differently In Bankruptcy?
Filing for bankruptcy as an individual or married couple with a significant amount of credit card debt can be a complicated process, especially if you do not yet have a clear understanding of how different types of bankruptcy work or how debts get discharged in consumer bankruptcy cases. According to an article in Bankrate, approximately 35 percent of Americans have at least some credit card debt, and the overall amount of credit card debt in the country has risen recently. Of those with credit card debt, more than 40 percent report that they do not know the interest rate they are being charged on their debt. The average rate, as Bankrate reports, is nearly 20 percent, which is high if you are not paying off your debt each month.
Is there a difference among different types of credit cards and credit card debt when it comes to bankruptcy discharges and how that debt is handled in a bankruptcy case? For example, does the interest rate on your credit card matter when it comes to having that credit card debt discharged in a consumer bankruptcy case, including Chapter 7 or Chapter 13? And, you might also be wondering, is there a difference between unsecured credit cards (most credit cards) and secured credit cards in bankruptcy cases? Consider the following information from our West Palm Beach bankruptcy attorneys.
Interest Rate on Your Credit Card Does Not Impact How That Credit Card Debt is Handled in Your Bankruptcy Case
Credit card interest rates can vary widely, from 0 percent APR (especially on balance transfers or new accounts) to extremely high interest rates of more than 30 percent. Indeed, according to a report from WalletHub, there are multiple banks that issue credit cards with 35.99 percent APR and 34.99 percent APR.
Regardless of whether you have credit card debt with a current 0 percent APR or debt with an interest rate exceeding 30 percent, credit card debt will most likely be dischargeable in your bankruptcy case. Generally speaking, there are only restrictions on credit card debt discharges when the debt was accrued through fraud or presumptive fraud.
Does the Amount of My Credit Card Debt Matter?
Whether you have a significant or a small amount of credit card debt, the total amount of debt likely will not impact your bankruptcy case. The only thing to be aware of is that there are debt limits on a Chapter 13 bankruptcy case. Currently, the debt limit is $2,750,000 for combined secured and unsecured debt. If you have so much credit card debt combined with other debt that your total debt exceeds that amount and you want to file for a reorganization bankruptcy, you will likely need to consider a Chapter 11 bankruptcy instead.
Unsecured Versus Secured Credit Cards
While the interest rate and amount of credit card debt should not impact your case, you should know that secured debt is handled differently from unsecured debt. Most credit cards are unsecured, which means the bank did not require collateral, and there is no property to be repossessed if you default on the money you owe. However, especially for consumers with low credit scores, secured credit cards can be a way of getting a credit card and rebuilding credit (and these types of credit cards are often useful for debtors following a bankruptcy discharge). If you have debt on a secured credit card and are planning to file for bankruptcy, the debt is likely still dischargeable, but the creditor will likely take priority over other creditors. In addition, any assets purchased with a secured credit card likely will not be yours to keep.
Contact Our West Palm Beach Bankruptcy Lawyers
When you have any questions or concerns about credit card debt or other types of debt in a bankruptcy case, you should get in touch with an experienced West Palm Beach bankruptcy attorney at Kelley, Fulton, Kaplan & Eller for assistance.