Credit Card Discharged Debt

If your credit card and other debts are too great, you might be considering bankruptcy. It would be advisable to brush up on bankruptcy law as it relates to your situation. In brief, the laws have gotten much stricter. Those filing bankruptcy are having to pay back bigger portions of their their debt. There are even times when creditors break the law by illegally collecting discharged debt.

In addition to those problems credit card companies are seeking a “nondischargeability action” in many cases. They are trying to make your credit card debt something that can’t be wiped away. Even after the bankruptcy the “nonchargeable” debt will still need to be paid back. There are two ways banks can get this 1) The application was fraudlent 2) They prove you used the card without an intent to pay. These new rules apply to both chapter 7 and 13 bankruptcy.

Red Flags

There are a number of ‘red flags’ the indicate you didn’t intend on paying the debt back. If any of these happened there is a good chance the judge will rule in favor of the credit card issuer. Most of these rely heavily on the timing of how you used the card and how you proceeded with your bankruptcy.

  • New additional credit card debt shortly before filing
  • Many new credit cards and applications for more cards
  • Pulling out large amounts of cash from your credit cards
  • Going on a dream vacation before you filed bankruptcy
  • Moving debt from one card to another as a way to make payments
  • Going over your credit limit frequently
  • Having all your cards maxed out at the time of filing
  • You’ve used your credit card after starting the filing process (e.g. paperwork, lawyers, notifications)

If at all possible avoid bankruptcy.

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Bankruptcy is intended to provide a fresh start to individuals. When someone declares bankruptcy much of their debt is discharged through the bankruptcy courts. When a debt is discharged it has no legal obligation to be paid back. In other words, the bankruptcy process clears the person of the legal obligation to pay discharged debts. But credit card companies, banks, and debt collectors are illegally pressuring debtors into paying these debts.

One reason we know that this is happening is discharged debts are being bought and sold on the open market. If these debts have no legal obligation to be paid back why would they be bought and sold among banks? The simple answer: These debts are being illegally collected.

There are different tactics used to collect these debts. The most common tactic is when the bank fails to update your credit report. Instead of marking a debt discharged they simply leave it active. As time passes the unsuspecting victim is racking up late payments and ruining their credit score. By leaving a black mark on your credit report it leaves you powerless to get a mortgage, finance a car, or apply for credit cards. A flawed credit history can also affect your career because jobs and promotions are tied to your credit score. When a person discovers these problems they are desperate to have them fixed. When the person calls the credit card company the solution provided by the company involves paying off the discharged debt. The tactic is subtle but effective.

The second types of tactics are more explicit in nature. Collection agencies will call relentlessly to recover the discharged debt. There are claims that employers and family members have been contacted for added pressure. Threats of garnishing the persons wages are common. For someone coming out of bankruptcy these aggressive techniques are nothing new. The difference now is that the person is trying to start over. Paying the discharged debt is easy.

The third tactic involves renewing the obligation to pay the discharged debt by signing a new contract. The credit card company will “cut you a deal” if you sign a new agreement to pay off the discharged debt. In this way the debt has become more valuable to those who would buy it and pursue collection. The credit card companies know you are in between a rock and a hard place and know how venerable you are. They might offer a new credit card to start rebuilding your credit if you claim the past discharged debt.

Unfortunately most bankrupt people don’t have a lot of money (duh!) to hire lawyers and sue the large banks for harassment and extortion. But there are some simple things a recent bankrupt person can do if they find themselves under pressure.

1 – Know what debts have been discharged and keep track of them. Bankruptcy courts and judges will specify in writing what debts have been discharged. It might take some digging. The idea of plunging back into paper work will seem daunting. Get a credit report after the bankruptcy is final and make notes on each of the accounts you have listed in it. Use this as a guide so when the credit card company calls you have your counter attack ready. Keep all your bankruptcy papers in order. When a “mistake” occurs on your credit report having this information will be crucial.

2 – Get a free credit report regularly. Instead of being surprised when you apply for a mortgage keep on top of things by checking your report at least every three months.

3 – If talking to customer service and faxing your bankruptcy documentation doesn’t work try calling attention to the scam. Your local news station would love to dig up the facts on the scam.

4 – Know your rights and stand your ground. These collection agencies have a list of regulations they must abide by. The same applies for banks and credit card companies. Make sure they are playing by the rules.

I hope this helps anyone who has gone through a bankruptcy. Please leave any suggestions or personal experience with this in the comments.

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