Will things you purchase with credit cards have to be given back if you file bankruptcy?
Image source: Flickr user _Dinkel_
If you're drowning in debt and considering bankruptcy, you may be worried what will happen to your stuff. This is a valid concern but, most likely, you won't have to hand it over. If you have spent heavily on your credit cards, you may wonder if you'll have to give back your clothes, flat screen TV and the other goods you bought with your plastic if you file bankruptcy. Generally speaking, you shouldn't have to. Today we'll take a look at when you can keep your purchases and when you'll likely have to give them back.
Secured vs unsecured debt
Chapter 7 bankruptcy typically discharges most types of unsecured debts. These are those that are not secured by an asset. For instance, a mortgage is a secured debt because it is secured by the home. A car loan is also a secured debt which is secured by the vehicle. If you are behind on payments for a secured debt, you will either have to make arrangements to continue the debt after bankruptcy or give up the secured item to get free of the associated debt. Credit cards are unsecured debts and can be discharged in most cases.
When credit card debt is not secured
What it comes down to is the fine print in your financial contract with the creditor. If the contract contains a “security agreement” it is a secured debt. With a MasterCard, Visa, Discover or American Express card, you will rarely find a security agreement in the contract language. However, if you have a credit card from a jewelry, electronics, furniture or a department store, there may be a security agreement that requires that you give back the item(s) purchased if you don't fulfill the obligation. In this case, the bankruptcy court will likely tell you to give back the stuff.
When credit card debt is not dischargeable
In addition to being concerned about whether or not you have to give back what you bought, you should be concerned about whether the debt will be discharged. As a rule, if you didn't spend with the intent to file bankruptcy, you're good and your debts should be written off as part of your Chapter 7 bankruptcy. However, if you intentionally ran up your credit cards with the intention of filing bankruptcy, you may not be able to have it discharged. To avoid an accusation of this type of fraud, avoid using your cards in the weeks before you file.
What you might have to give back
Even if your credit card or store card had a security agreement, you may not have to give back everything. Electronics and department stores will typically demand you give back white goods – this is the industry term for major appliances such as a washer, dryer, refrigerator or air conditioner. From an electronics store, you may be asked to give back your flat screen TV or costly computer. For a jewelry store, high dollar goods like necklaces and engagement rings will likely need to be returned. But credit card charges for clothes and other goods a retailer can't resell will likely be left with you.
If you're stretched to the limits financially and can't afford to pay your bills, find out more about getting a fresh start. Contact the law office of John T Orcutt for a free consultation on an affordable North Carolina bankruptcy to find out what debt you can shed while still keeping your goods and assets.