As of 2020, 54% of students have student debt. The vast majority of people cannot afford things like a car or house without taking out a loan. To get the loan you need credit. To get credit, you need to have borrowed money at some point. You can see that the system is cyclical and set up for debtors to fail.Credit Card Debt is Unique
Most of our clients come to us burdened with credit card debt. They are immediately looking for relief. Given that most credit card debt is dischargeable in a bankruptcy, we often have clients asking if they should continue to use their credit cards before they file. This is generally a bad idea.
As discussed in other pages, there is a rule that prevents debt from being discharged where the debtor intended to defraud their creditors. If you use your credit cards 90 days prior to filing for bankruptcy, you might have violated the bankruptcy code.
Under the bankruptcy code, there are two credit card specific situations that can result in the debt being declared non-dischargeable:
- If you use a credit card within 90 days prior to filing to purchase “luxury” goods more than $725, or
- If you use a credit card within 90 days prior to filing to get a cash advance which add up to $1,000.
A luxury good or service is anything that is not needed to support the debtor or a debtor’s dependent (e.g., a television, video game system, or decorative pillows). If the debtor does fall within one of those situations, then the debtor will have to show they intended to repay the debt or that they did not know they were bankrupt at the time they used the card.Debt Negotiation
For the above reasons or if you have too much assets, an attorney might suggest you do not file for bankruptcy. If you do not file, your best option is to enter into an agreement with your creditors. Generally, with credit card companies, your options are:
- Pay back the whole debt across several monthly payments,
- Pay back less than you owe over one or two payments, or
- Do nothing, wait for them to sue you, and hope the Court orders lenient payment plan.
The problem with the first two options is that the collection agency or credit card company is going to want you to fill out a financial statement before doing so. They are going to want you to disclose your other debts and assets (e.g., bank accounts, other cars, campers). Filling out this sheet can come back to haunt you.
Let’s say you enter into an agreement to pay back the debt at $300 per month after giving the collector a financial statement. In that financial statement you disclose you work at the local library, have a bank account in Lowell, and have a 2010 camper you keep for vacations.
After a few months your debts get out of control and you miss a couple $300 payments. Now, the collector can potentially attach your library wages, attempt to garnish you Lowell checking account, or put a lien on your camper. That is because you gave them the information necessary for them to attach to your property or wages.Call Us Early Before You Make A Misstep
What are your options then? The key is to call us early. We can walk you through the process and limit your risk exposure from collectors and other creditors. We can reach out to your creditors and get you the most favorable agreement possible.
Do not call the supposed “debt relief” programs. Some of our clients have come to us after they have spent thousands on a debt relief company and still have creditors suing them. Call us today for a free consultation at (978) 458–1229.