Chapter 7 bankruptcy is an excellent method for erasing unsecured obligations. A debt that is unsecured is one for which there is no collateral to secure the loan. Credit card debt and medical expenses are the most common types of unsecured debt. In a chapter 7 bankruptcy, these debts are completely discharged. You are exempt from paying the debt, and the creditor is prohibited from ever attempting to collect it again. Before filing for bankruptcy in relation to unsecured debts, there are a few hazards you should be aware of.
Obtaining Luxury Goods
Initially, certain card usage prior to registering for bankruptcy can cause complications. If you charge more than $550 worth of """"luxury"""" items to your credit card within 90 days prior to filing for bankruptcy, the bankruptcy court may consider those specific charges """"non-dischargeable,"""" meaning they will not be eliminated in bankruptcy. Although the bankruptcy code does not expressly define what constitutes a luxury item, it does not include items or services that are reasonably required for household support.
Funds Advances
Next, if you take out a cash advance of more than $825 in the 70 days prior to filing for bankruptcy, that debt may also be declared non-dischargeable. This one is more straightforward: if you took out a financial advance, plan to repay it.
While there is a presumption in the bankruptcy court that the purchase of luxury goods and cash advances are not dischargeable, the creditor must appear in your bankruptcy case and ask the court to make the determination that they will not be discharged. Therefore, even if you have these types of charges on your credit card, if the credit card company does not request that the debt be considered non-dischargeable, it will be discharged in your bankruptcy case.""
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