Unsecured debts are debts that are owed on most credit cards, like MasterCard, Visa, and even gas cards. This means that when the individual files for Chapter 7 bankruptcy, these unsecured debts will be discharged, or wiped out, in the bankruptcy. It doesn't matter if the cards were used for household goods or business expenses. The only thing that might raise a red flag to the trustee is if the card was used all the way leading up to the actual filing date when the debtor knew that they would be filing bankruptcy all along. This would be considered fraudulent and, therefore, not be discharged in the bankruptcy. Secured cards on the other hand are secured by an item. Typical examples of secured cards are those from Best Buy, Circuit City, or Howard's TV's. High cost purchases, such as computers or flat screen televisions, tend to be scrutinized by electronic companies. This will mean that when an individual files for Chapter 7 bankruptcy and has their unsecured debts discharged, the items that were purchased with the secured card, such as the computer or flat screen TV, will either need to be given back or the debtor will need to continue making the payments if they still wish to keep the item. However, in some cases, if the store is unable to produce the necessary documentation to prove the security then the debtor may be able to keep the item and discharge the debt. This can be a tricky situation to prove and one that should be discussed thoroughly with a bankruptcy attorney prior to the filing.
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In October of 2005, lawmakers added the Bankruptcy Abuse Prevention and Consumer Protection Act. Basically this amendment to personal bankruptcy laws makes it more difficult for individuals to file Chapter 7 bankruptcy. Some of the many changes include, debtors must qualify to file under the means test, they must take credit counseling and financial management courses, there are greater restrictions on exemption laws, and the burden of proof is higher determining an inability to pay debts. Credit card purchases are scrutinized to determine if they are fraudulent and deemed un-dischargeable. With the added complexities to the bankruptcy laws, and trying to determine what can and cannot be discharged in a bankruptcy filing, as well as protection of personal property, an individual contemplating bankruptcy should seek advice from a local bankruptcy attorney.
There are many circumstances that can lead to financial problems and filing bankruptcy. Unforeseen medical bills, divorce, job loss, an adjustable mortgage rate in a down housing market, and credit cards with high interest rates can all create a real financial mess for anyone. Burying your head in the sand and doing nothing will not solve the situation, but will only make it worse. The bankruptcy code was created to help give people relief from debt that is too deep to repay and give them a fresh start. The first step to take control of one's financial situation is to speak with an experienced bankruptcy attorney to discuss their options and goals for their financial future.
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