Often people take debts to meet their financial requirements. These debts can be either secured ones (where a property is kept as collateral) such as a home loan or car loans; or unsecured like credit cards, etc. Since most credit card debts do not have any property which can be claimed in case you don’t pay, they can be discharged during bankruptcy. However, sometimes, some fine print on the card can make them secured without you having any knowledge of this. In such cases, these debts will not be discharged during bankruptcy. It is therefore important to be aware of any such development prior to a bankruptcy filing.
Credit cards and bankruptcy
While using a credit card you agree to all terms which come with the agreement specifying how to use the card, how to pay for it, the interest rate you will be paying etc. Since the agreement is worded with extensive legal terms many people skip going through it, focusing only on how much you have to pay and what interest you will be paying. Since credit card companies also realize that people skip over the terms and conditions, they have started incorporating clauses which can affect your rights. Sometimes, clauses which give credit card companies the permission to seize property which you purchased using the credit card in case of failure to pay, might be incorporated. With the integration of such clauses the loan converts from an unsecured one to a secured one.
Incorporation of clauses similar to the one stated above can make a huge difference in the way your credit card loans are seen. Unpaid credit card loans may result in repossession of your property which was not possible in earlier cases. As per the standard agreement, in case a person defaults on credit card payments, the company can either negotiate for payments or sue you to get them. But, with the clause, any item you purchase using the credit card can turn into collateral on non-payment of dues!
Generally secured loans can be determined easily, like a car loan or a house mortgage loan as it is specified that the lender will take possession of the property on non-payment of dues. However, this is not expected from credit card companies. Lawyers of Dallas based bankruptcy law firm Recovery Law Group inform that the threat of repossession is not the only issue at hand in such case. During bankruptcy, secured and unsecured debts are treated differently, with the latter being wiped out after bankruptcy. The secured debts, however, are treated differently. You either have to give up the property to pay the dues or agree to a repayment plan if you wish to keep the property. Chapter 7 is the preferred way to wipe out unsecured debts while if you wish to retain the property linked to secure debts, Chapter 13 should be your choice. It is therefore important to know more about your credit card debts before filing for bankruptcy.
Does your credit card come with a fine print clause?
Many credit card companies are securing their card loans with the items purchased by the cardholders. Despite the practice becoming unpopular in the 1990s, credit card companies continue with the practice. Since most people do not go through the entire agreement with their credit card company, they also might end up losing any purchases made using their credit card, if they are unable to pay for them.
Many times, the time and money involved in repossessing your purchases made with the card is too much for the credit card company to pursue. However, it can be used as a threat (which can be followed through) so that you make payments towards them. In case you have used the credit card to make a big purchase, the company might get it repossessed. It is important in such a situation to bear in mind of your rights. As per California Commercial Code Section 9609, a creditor can collect collateral without breaching the peace, i.e. people who come to repossess your property cannot enter your home without permission. In case you deny it, the only recourse available is through the court.
Whether a credit card company goes to the court depends on the cost of the item purchased. It is not worth spending time and money if the purchase is of a small amount. Consumer Financial Protection Bureau organizes a database of card agreements which can be consulted to find out if your credit card contract has a similar provision. You could also consult bankruptcy lawyers at 888-297-6203 to find out more about your options. However, the best way to avoid such a situation is to not take such a credit card. Before getting a new credit, do complete research about the company and their policies. It makes no sense to get a credit card which has difficult terms and conditions attached to it. In case you already have such a card, the best option will be to pay off the dues and close it at the earliest.