Credit Card Debt

Many individuals face difficult times like divorces, business collapses, illnesses or injuries, during which finances run tight and one begins to use credit cards to cover the regular shortfall.  Usually, the intent (more – the hope) is that, when situation improves or the luck turns around, the person would be able to repay the outstanding debt.  Individuals in these situations can be left with a staggering amount of credit card debt.  Due to the high percentage and the amount of credit card debt, an individual is oftentimes unable to pay the required amount and eventually defaults on the payments completely, causing credit card companies or debt collectors to threaten a lawsuit if the individual does not pay the amount that is due.

Collection Cases Involving Credit Card Debt Place the Burden on the Credit Card Company
In the case of credit card disputes outside of the Bankruptcy Court, the burden lies with a credit card company to establish at trial that an amount is due.  This evidence often requires producing the original credit card agreement or application to prove that a contract exists between the individual and the credit card company.  The older these documents are, the more difficulty the credit card company often has in finding this evidence.  Not to mention, many older accounts have been sold to third-party debt collectors who often have even less evidence about the original debt than the credit card company.  As a result, individuals who challenges credit card companies in a court of law often succeeds.

Credit Card Companies Do Not Expect Individuals to Dispute a Debt
Many types of credit card disputes are won because an individual fails to dispute the amount in question or even to respond to a lawsuit.  Instead, credit card companies frequently obtain a judgment by default for the amount requested by the company.  Often, if an individual chooses to dispute the terms, a credit card company will offer a settlement agreement where the individual makes payments over time for the amount that is claimed due or less.

  • IMPORTANT NOTE: When a credit card company or a collection agency offers a settlement, there may be a significant income tax consequences if an amount of debt they offer to “forgive” is more than $600.  It would be prudent to seek advice of a bankruptcy and/or tax attorney prior to accepting any such offer for settlement.

Credit Card Companies Often Do Not Pursue Small Cases
Because many credit card causes involve small amounts and credit card companies or debt collectors do not want to pay the various costs involved in litigating such an issues.  However, if an individual owns a real estate, it is a virtual certainty that a credit card company or a collection agency will pursue a court action to establish a secured lien against the person’s property.

Declaring Bankruptcy is One Method for Responding to Credit Card Cases
Chapter 7 bankruptcies remove all unsecured debts including debt from credit cards. In a Chapter 13 bankruptcy, all debts dischargeable in a Chapter 7 are included in addition to certain debts that are non-dischargeable.

Unsecured Debts
Credit cards are considered unsecured debts, which means that if an individual does not pay back the card as agreed, the credit card company cannot then take back property in order to satisfy an obligation.  However, once a credit card company obtained a court judgment, it has an ability to secure the debt owed by an interest in the person’s real estate interest.