Bankruptcy FAQ: Will I Lose Everything I Bought With Credit Cards?

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If you’re considering filing for Chapter 7 Bankruptcy, chances are pretty good that you’ve been making good use out of a handful of credit cards. In fact, many people who decide to file for bankruptcy admit to relying on their credit cards for the past few years in order to “just scrape by.” Over time, the monthly balances creep higher and higher until even the minimum payment becomes too much. That’s when most people officially start the NJ bankruptcy filing process.

Some of the most frequently asked questions from debtors when considering bankruptcy include, “Will I lose my car?” and “How can I keep my home?” These big ticket items are of the utmost importance due to their high monetary value as well as the critical role they play in day-to-day life.

Once you realize that it is possible to keep your home and vehicles(s), it may dawn on you that a large portion of everything you “own” was actually purchased with a credit card. Naturally, if you’re getting ready to file for New Jersey Chapter 7 Bankruptcy, you haven’t even come close to paying off those credit card debts. Which begs the question: “If I haven’t paid for it yet, do I really own it?”

Those people for whom bankruptcy is the last viable option begin to wonder if they will indeed be left with literally nothing. Luckily, images of walking out of the court house with only the clothes on your back (and sometimes not even that) are far-fetched and unrealistic. Although you may have used credit cards to pay for all of your clothing, shoes, furniture, appliances, and probably even the computer you’re reading this on – the idea that filing for bankruptcy in New Jersey will cause you to lose everything? Just isn’t true.

The number one reason you won’t lose everything when you file for bankruptcy is because the main goal behind bankruptcy laws is to get struggling debtors back on their feet. The laws surrounding bankruptcy are in favor of the debtor being able to wipe out all debts that don’t have a “Security Agreement” attached to them. Major credit card issuers like Mastercard, Visa, Discover and American Express do not have a Security Agreement, which means that the items you purchased with those cards cannot be used as collateral.

An example of a Security Agreement is what takes places when you purchase a vehicle. You will not be given the title (or legal ownership) of the vehicle until your agreed-upon auto loan time-period is up, and/or you have made all of the payments. If, at any time, you cease payments on your vehicle, your auto lender can (and will) take the vehicle away from you.

Often times, store credit cards, like Macy’s, Boscov’s and Sears, do have Security Agreements, which means they would technically be able to reclaim the items you purchased, or the monetary value of said items. Usually, however, you’ll be able to work out a good agreement (with the help of your NJ bankruptcy attorney) if there are some incidentals that you purchased with credit that you really want to retain.

Another thing working in your favor is that creditors usually don’t want used items, so in all likelihood, you’ll be able to wipe out the money you owe while still holding onto most of your “stuff.” The only exceptions here are usually big ticket items, like expensive appliances and jewelry. Even some valuable items that you own outright could be sold by your bankruptcy trustee in order to pay off your creditors, as long as those items are not exempt from bankruptcy proceedings.

 

Image credit: Mike Mozart

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3 Responses to Bankruptcy FAQ: Will I Lose Everything I Bought With Credit Cards?

  1. Pingback: Can Bankruptcy Get Me Out of Credit Card Debt? | Veitengruber Law

  2. Pingback: I’m too Embarrassed to File for Bankruptcy! | Veitengruber Law

  3. Pingback: Planning to File for Bankruptcy: Can I Still Take a (Pre-Paid) Vacation? | Veitengruber Law

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