Chapter 7: Should I Include Credit Card Payments in My Monthly Expenses?

Understanding How to Handle Credit Card Payments in Chapter 7 Bankruptcy Filings

Navigating the nuances of Chapter 7 bankruptcy can be complex, especially when it comes to accurately calculating your monthly expenses. One common question borrowers face is whether to include payments on credit card debts in their expense calculations, particularly when some debts remain active while others have been discontinued.

Case Scenario: Managing Credit Card Payments During Bankruptcy Preparation

Consider a typical scenario where an individual is preparing to file for Chapter 7 bankruptcy. They have a total of five credit cards:

• Two accounts unpaid for several years.
• Three accounts for which they are currently making payments (e.g., Apple/Goldman Sachs at $72/month, Avant at $25/month, and Concora at $40/month).

With a limited monthly surplus — roughly $40 to $55 — the debtor is concerned about how including or excluding these payments will impact their eligibility and the overall bankruptcy process.

Key Considerations in Expense Calculation

1. Including Payments as Expenses:
   When preparing your bankruptcy schedules, you are generally required to list all routine monthly expenses. Payments made on debts currently being paid are typically valid expenses that reduce your surplus. Disclosing these payments can provide a realistic picture of your financial situation.

2. Potential Discharge of Debts:
   In Chapter 7, unsecured debts like credit card balances are usually discharged, meaning you’re not required to continue payments once the case is concluded. However, keeping current on these accounts during the process is often necessary to maintain the status quo and may be viewed favorably by the trustee.

3. Impact on Qualification Thresholds:
   Since the surplus is small, including these payments might result in a surplus too low to qualify for Chapter 13, which has stricter income and debt repayment criteria. An attorney has indicated that a $50–$55 surplus is unlikely to qualify for Chapter 13 if a switch becomes necessary.

4. ** Trustee’s Evaluation and Reconsideration:**
   Bankruptcy trustees may review your expense schedule. If they determine that certain payments are not necessary or are inconsistent with your overall financial situation, they could recalculate your surplus, potentially affecting your bankruptcy options.

Conclusion: Best Practices for Including Credit Card Payments

Ultimately, it is advisable to:

• Include all routine payments on active credit accounts in your bankruptcy schedules, unless advised otherwise by a qualified attorney.
• Be transparent and accurate to ensure the court and trustee have a clear understanding of your financial circumstances.
• Consult with your bankruptcy attorney before finalizing your filings, especially since local practices and trustee interpretations can vary.

By carefully documenting all expenses, including current credit card payments, you will facilitate a smoother bankruptcy process and ensure compliance with legal requirements. Remember, each situation is unique, so personalized legal counsel remains the best course of action to navigate these complex decisions effectively.