My Visa bills are piling up, can bankruptcy help?

Bankruptcy can help eliminate Visa bills that have spiraled out of control

Yes, filing for bankruptcy is an effective way of eliminating credit card debt. If you’ve run large balances on a Visa card as a result of a job loss or unexpected medical procedure, filing for Chapter 7 will completely eliminate those bills. The bankruptcy discharge is powerful, it gets rid of most unsecured debts such as credit cards, personal loans and medical bills.

Looking for an added bonus? Unlike debts forgiven through the debt settlement process, debt discharged in bankruptcy is not counted as taxable income. You could discharge more than $100,000 of debt on your Visa card and your tax bill will not go up by a single penny. By contrast, when a credit card lender agrees to forgive $100,000 of debt, the IRS counts the amount forgiven as if you earned the money in your job and your tax bill goes up.

This means that settling your credit card debts has the potential to cause you to incur debts with the IRS.

Using credit cards to buy luxury items prior to filing for bankruptcy is strictly forbidden and can get you in trouble

It is important to keep in mind that there are rules to follow if you plan to shed your Visa bills in bankruptcy. A successful bankruptcy case requires good faith. You must approach the process honestly and fairly. Debtors who have recently racked up credit card bills buying flatscreen TVs, expensive clothing and jewelry are in for an unpleasant surprise when they meet the bankruptcy trustee. As a general rule, there is nothing wrong with having used your credit cards recently to purchase necessities like groceries or gas for your car, however, there is a presumption of abuse for purchases of $500 or more made within 90 days of filing for bankruptcy. Credit card purchases of $500 or more on luxury items within the 90 day window are presumed to be non-dischargeable in your bankruptcy case. This means that they cannot be eliminated.

An example of how bankruptcy discharges Visa bills

Let’s say that John and Mary are a married couple living in Dayton, Ohio. when the economy took a turn for the worse, John lost his job and the couple started paying their bills using a Visa card. It took more time than they expected for John to find another job and the credit card debt became unmanageable. John and Mary meet with a bankruptcy attorney and decide that Chapter 7 is their best option.

Once John and Mary have retained counsel, it will be his or her job to work with them to identify all of their outstanding debts, including their credit card debts. Once the debts have been identified, they are listed in the bankruptcy schedules. Schedule F lists the unsecured non-priority claims of the debtor in a bankruptcy case, and this is where John and Mary’s Visa debt will be included.

Once the case is filed, the bankruptcy court sends notice to all creditors listed in the schedules that a bankruptcy case has commenced and that they are prohibited from contacting John and Mary regarding their claims. Assuming that everything goes smoothly, John and Mary will receive a complete discharge of their Visa debt within approximately 90 days of filing their case. In the event that the couple purchased luxury items on credit of over $500 within 90 days of filing for bankruptcy, it is possible that the credit card company would file a lawsuit objecting to their discharge. If John Mary were found to have intentionally tried to game the system, their entire discharge could be threatened. The likelihood of a credit card company or trustee objecting to discharge is often tied to just how egregious the violation appears to be. The higher the dollar amount, and the greater likelihood of bad faith will both contribute to problems for the debtor.

The best policy is to enter the system honestly and openly.