It is not a walk in the park to deal with debt when you are going through a financial crisis. The majority of people today rely on credit cards to pay their bills and make purchases. Due to high-interest rates and freedom of usage, people end up accruing excessive debt, which they are unable to repay. The credit card company is going to file a lawsuit against you, and the best way to discharge a debt like that is by declaring bankruptcy. At the Los Angeles Bankruptcy Attorney, we are eager to help people facing this kind of financial crisis. We understand that bankruptcy laws are complex and the best way to deal with credit card debt to handle your debt crisis.
California Credit Card Debt
During the great recession, California was one of the states in the U.S. that was greatly affected. The unemployment rates were high, which in turn choked the housing market because of foreclosures. But from 2010, the unemployment rates went down from 12.2% to 5.5% as people returned to work. Foreclosures reduced dramatically, and the housing market stabilized. However, even in the current state, debt-management in California is a problem because many people still rely on credit cards hence end up racking up too much debt, which they are unable to pay.
Credit card debt lenders do not have many legal rights compared to student loan debt, mortgage debt, and auto loan debt lenders. They cannot take your property and auction it or hold it until when you are done repaying the debt just like mortgage and auto loan debt lenders. However, with the introduction of the statute of limitations, credit card issuers can now sue those who are unable to repay the debt within four years after their last payment to force those who have defaulted to repay the debt.
California Statute of Limitations
California is one of the leading states when it comes to protecting its residents. On the issue of consumer debts, it has enacted laws to protect residents from lenders and excessive borrowing. For unsecured debts like credit card debt, the statute of limitations is four years. The restriction does not apply to borrowers who enter into an oral contract with the lender. For contracts entered via word of mouth, the statute of limitations is twenty-four months.
In the event the agreement is breached by missing the date of repayment, the statute of limitations begins to run. During the four years from the time you missed your last payment, the credit company has the legal right to file a lawsuit against you. If you are in such a situation, retaining the services of a bankruptcy attorney is wise because they know how credit card issuers operate. They understand that the period before filing a lawsuit can be extended, that the statute of limitations can be extended or revived hence will do everything in their power to prevent a lawsuit.
The majority of borrowers today don’t fear being sued because there are no prisons for people who fail to repay debts. But once you stop answering the credit card issuer’s calls and fail to repay the debt, the lenders have the permission from the court to force you to repay. If you are served with a court order for defaulting your debt and you assume it, despite there being no prisons for debtors, you will be facing jail time.
A court order might instruct you to continue with the repayment or appear before the court. Once you have received the order, you have up to one month to respond. When you fail to respond within that time, the court will rule a default judgment in favor of the credit card issuer. This permits them to access your bank accounts, wages, and lien your property.
The Process of Responding to a Lawsuit
You are not supposed to panic whenever you are served with a court order or summons. It doesn’t mean the debt collector will begin to garnish your salary, checks, and bank accounts immediately. Whenever a creditor chooses to collect a debt through a lawsuit, once you are served with a court order, you should do the following:
File an Answer to the Complaint Filed
Before responding to a lawsuit, always make sure that you have verified the amount of debt you owe. If you have checked the credit card debt amount and it’s less than $25,000, you can use the PLD-050 form to respond to the credit card lawsuit. In the event, the suit involves debt collecting companies or third parties, and the amount of debt verified is more than $1,000, you can use a different form.
When responding, you are denying the allegations and defending yourself. There are two common defenses you can use. These affirmative defenses include:
- Running out of the statute of limitations - The law of limitation for a credit card debt is four years. If a credit card issuer brings a lawsuit against you after this period, you can argue that the statute of limitations has elapsed. Thus the card issuers have no legal rights to sue.
- Failure to state a cause of action - A complaint should be composed of four elements. If these elements are missing, then you have a strong defense. These elements include the existence of an agreement in oral or written form, performance or attempted performance of the agreement by the complainant, breach of the contract by the defendant, and the damages suffered by the plaintiff due to the
File this answer with the court and send the proof of service form to the plaintiff via mail. The court will then arrange for a date in the court. But if the creditor fails to prosecute the case, it will be dismissed.
Request for an Extended Time to Respond from an Attorney within the 30 days
Having ample time to respond to a complaint is good because it allows you to verify the amount of debt in question, plus it also allows you to plan. The time for answering is one month with no extension.
Speak to the Creditor’s Attorney and Find Common Ground in Terms of the Repayment Plan
No one prefers a lawsuit because it is costly. If the amount of debt is reasonable, you can call the attorney representing the plaintiff and agree on a settlement instead of going to court. You can settle the whole amount you owe or use a debt management plan. Due to the debt crisis in California, several credit counseling firms can assist with the repayment. They will speak to your creditor and agree on a repayment plan, then you will be making monthly payments to them, and in turn, they will pay the debt collector or credit issuer.
File for Bankruptcy
Declaring bankruptcy is the other way to respond to a credit card lawsuit as it stops your creditors from pursuing the lawsuit. You, however, need an attorney for this process. Below is bankruptcy discussed in detail and how it works in credit card debts.
Declaring Bankruptcy for Credit Card Debt
Bankruptcy is a procedure where a person states that he or she has been unable to pay the debt. Declaring bankruptcy has its benefits and shortcomings. By filing for bankruptcy, it means that you are not responsible for certain debts. After declaring bankruptcy, a court order is also issued to forbid the credit issuer or debt collectors from reaching out to the debtors. Undertaking the process also affects your credit card record for ten years. When planning to go the bankruptcy route due to overwhelming debts, you must reach out to a bankruptcy attorney. They are the processionals likely to advise you on the best way to go regarding your credit card debt because of the pros and cons involved.
Cases of people declaring bankruptcy declined in 2015 compared to 2010. During 2010, California was walloped by the great recession, where a lot of people lost their jobs, making it challenging to repay loans. But in 2015, as the economy improved, employments were created, leading to a decreased number of defaulters, which in turn led to reduced cases of declaring bankruptcy.
Benefits of Declaring Bankruptcy for Credit Card Debts
As said earlier, by declaring bankruptcy, one gets protection from the automatic stay. Automatic stay protection blocks credit card issuers from any attempt to collect a debt during the entire duration of the bankruptcy. During this period of security, you have time to put your finances in order so that you can start clearing your debts.
Understanding Chapter 7 and Chapter 13 of the Bankruptcy Law
Income level is the main difference between Chapters 7 and 13 of bankruptcy. Chapter 7 bankruptcy is more comfortable to file, and the debtor has the freedom to remove all the dischargeable unsecured debts. On the other hand, chapter 13 involves people with a regular income and allows payment on dischargeable unsecured debts.
How Chapter 7 and Chapter 13 Works
Planning your future finances while still repaying a debt can be difficult. That is why getting time to arrange your finances without communication from the credit card company is essential. However, the challenge is that many people don’t understand how bankruptcy works.
If you declare bankruptcy as per Chapter 7, your bankruptcy trustee takes over your non-exempt assets. The trustee takes the non-exempt assets of the debtor and puts them up for sale. The money recovered in the sale is then used to pay the creditors.
Under chapter 13, when you declare bankruptcy, you create a payment plan that is affordable where you choose to repay the credit card issuer money monthly for a duration of between three to five years. The role of a trustee in this chapter is to disburse payments made by the debtor through the plan, to the creditors. Before the judge confirms the plan, the trustee must review it to find out if it meets the requirements of the bankruptcy code.
When you pick any of these chapters to declare bankruptcy, all unsecured debts are removed or wiped out. Despite bankruptcy being an excellent way of dealing with credit card debt, not everyone is eligible.
California Bankruptcy Exemptions
Many individuals fear the loss of their property after declaring bankruptcy. However, you don’t need to panic because bankruptcy exemptions are flexible. The assets you will be allowed to keep after declaring bankruptcy will depend on the exemption that you are eligible for. You can choose protection under the following Sections:
If you are a single person, this section allows you to protect $50,000 in your home's equity. Families are permitted $75,000 in investment while persons above the age of 65 years are allowed $150,000 in a home’s equity. Also, for vehicle owners, the section protects no more than $2,550 in the value of all your cars. Additionally, it protects $6,750 of your jewelry value.
The section allows you to protect your equity at home, known as a homestead exemption. You are only authorized to protect capital up to $70,725. The next is the wildcard exemption. The amount of equity in wildcard is up to $1,100 plus any unused portion of your homestead. Therefore, if you have no equity or you don’t own a home, you can make use of the $20,725 to protect other assets that you own plus the $1,100 in the property you own. Debtors who are jewelry owners can protect no more than $1,350 of the jewelry value.
With that in mind, every time you declare bankruptcy, all your property becomes bankruptcy estate. If you declare bankruptcy under Chapter 7, the bankruptcy trustee evaluates your assets to determine the ones that don’t fall under exempt assets so that they can transfer them to the creditors. Under Chapter 13, however, your income and expenses are assessed to determine the number of non-exempt assets you own.
The core objective of exempt laws is to ensure that once you file for bankruptcy, you are left with a few assets by the time the process concludes. The non-exempt property is what is sold to repay the credit card issuer or a third party who is a debt collector. The exempt property is what you keep after the bankruptcy period elapses.
Bankruptcy Challenging by Credit Card Issuers
Card issuers end up making losses because filers in bankruptcy often pay minimal amounts because the debt is unsecured. Card issuers might decide to challenge the discharge of debt so that it can be made in full, to stop these losses. Challenging bankruptcy is known as non-dischargeability action.
To win the case, the credit card issuer can:
Claim that the First Application You Made to be Issued with the Credit Card was Fraudulent
When proving your card application was fraudulent, the card issuer can argue that you lied or withheld crucial information.
Claim that You Used the Card to Accumulate Excessive Debt without any Intention of Repaying it
It is not possible to read the mind of the filer and say what they were thinking when proving they racked up debt without any intention to repay. Credit card issuers, therefore, rely more on circumstantial evidence to show that when you were making purchases and paying bills using the card, but you did not intend to repay the money. Some of the circumstantial evidence the court might rely on include taking a brand-new credit card and making purchases, then after that filing for bankruptcy, borrowing from one card to pay off another, exceeding the credit limit, and using the card when unemployed.
If the issuer can prove that any of these things happened, it will be easy to win the case challenging bankruptcy.
Avoiding Creditor Challenges
The best way to prevent a challenge is by denying card issuers the opportunity to challenge. You can do that by ensuring that there is a reasonable time gap between when you made a large purchase and the day of filing for bankruptcy. Try and wait at least three months after making the colossal purchase to file for bankruptcy. Also, you can argue that there is no rule on how much one should wait before filing for bankruptcy in the event the bankruptcy is challenged.
The other way to prevent a challenge is opting for an out of court settlement. A card issuer cannot win a lawsuit if the court can see you had reached out to the creditor, and documents are showing you were willing to settle the debt.
Find a Bankruptcy Attorney Near Me
If you are having financial difficulties, making it challenging to repay your credit card debt and you want to declare bankruptcy, we invite you to contact us at Los Angeles Bankruptcy Attorney. Bankruptcy is complicated, and you need people with knowledge about these laws so that you can make an informed decision. Reach out to us via phone at 424-285-5525 for a free consultation. Our team of attorneys will do the best to ensure card issuers do not challenge your bankruptcy.