Credit Card Debt Forgiveness
‘Forgiveness’ Can Be Bankruptcy Protection
Oftentimes when people speak of credit card debt forgiveness, they are actually talking about filing for bankruptcy protection. Credit card debt counseling and consolidation, and even settlement, do not amount to forgiveness for you are paying an amount to settle your debt for less than you owe. Under bankruptcy laws, at least before the 2005 amendments, you could achieve forgiveness of your credit card debt by filing a Chapter 7 petition.
New Rules Mean Changes To The Law
There you could actually obtain a “fresh start.” Now it is not so easy. Under the amended Bankruptcy Code, you have to meet a two-pronged income test to file a Chapter 7. This is critical because if you can meet this test, then you will be able to achieve credit card debt forgiveness. The first prong of the test is after allowing for certain exemptions such as rent, food, etc., can you afford to pay 25% of your unsecured debt, which includes the outstanding balances on your credit cards. Secondly, are you earning more than your state’s median income. If you meet both of these tests, then you will not be allowed to maintain a Chapter 7 proceeding. You will be transferred to Chapter 13 where you will have up to five years to pay your debt. Even under chapter 13, however, you may be able to still discharge some of your credit card debt.
Chapter 7 ‘Forgiveness’ Can Be Denied
Returning to Chapter 7, if you meet one of the tests but not the other, the judge can still deny you relief under Chapter 7 if the judge finds that you will be abusing the system by proceeding under Chapter 7. However, if you meet both prongs of the income test, you still may be able to proceed under Chapter 7 if you can convince the judge your case represent “special circumstances.” Just what constitutes special circumstances is not spelled out in the law. Nevertheless, a sudden illness resulting in huge medical bills, destruction and loss from some natural disaster might qualify.
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