What is the Credit Card Debt Relief Process?

The process for credit card debt relief has 3 different stages.

Stage 1: Pre-Bankruptcy Planning: Expert Chapter 7 practice requires perfect preparation: The key to all Chapter 7 cases is advanced and well-developed preparation prior to filing. Complete evaluation with a Means Test and the formulation of a customized plan to achieve your goals is the critical element to all our Chapter 7 success. All cases are completed prior to filing so that results are predictable and all Chapter 7 discharges are granted.

Stage 2: Filing the Chapter 7 Case: In the hands of experienced and dedicated Chapter 7 counsel, the filing of a case is the final most predictable step in the Chapter 7 process. Properly filed, the Chapter 7 fresh start begins on the filing date and the clients only further involvement is an informal and respectfully conducted Chapter 7 meeting held in an office setting with our attorneys that routinely takes less than ten minutes.

Stage 3: Rebuilding your Credit:  To learn more about credit scores pre- and post- bankruptcy, contact an experienced debt relief attorney at the Law Offices of Neil Crane. We have over 35 years of experience in providing solid debt relief solutions and credit score recovery.

Chapter 7 Protects Your Assets Through Exemption Law

By properly utilizing all the exemptions available under state or federal bankruptcy exemption law, our clients can obtain full Chapter 7 debt relief and protect:

  • Home equity up to $75,000 per person
  • Bank accounts up to $12,750 per person
  • Cars, trucks and other vehicles
  • Tools of the trade
  • Life insurance policies
  • Pension assets
  • Household belongings and other important assets

Relieving debt while protecting personal assets assures you of the best possible financial fresh start.

Qualifying for Chapter 7 Bankruptcy

We understand that many of our clients have several good reasons for preferring Chapter 7 bankruptcy filing over Chapter 13.  If Chapter 7 is in your best interests, we want to help you get there.  Chapter 7 can allow you to eliminate almost all debt, including credit card debt, medical debt, personal loans, deficiency judgments, and more.  It will place an automatic stay on all debt collection activities, foreclosures, levies and garnishments.

To qualify for Chapter 7, you generally must be eligible under the means test, but every case is different.  Even if your income is above the median standard, you could still qualify for Chapter 7 relief through a stringent evaluation of your income and liabilities by our experienced team of means testing attorneys.


Qualifying for bankruptcy used to be a simple process.  All borrowers/petitioners were eligible for the full debt relief of Chapter 7.  But the Bankruptcy Code Revision of 2005 changed all that.  Now, only certain below median income households are guaranteed to qualify for Chapter 7 relief.

For higher income families, the “means test” is the determining factor in qualifying for Chapter 7 full debt relief rather than Chapter 13 debt repayment.  There are many circumstances where Chapter 7 eligibility is complicated, and only the knowledge of specialized counsel makes qualification for Chapter 7 relief possible.

The means test takes into account Internal Revenue Service (IRS) information, living expenses, income, numbers of dependents and other complex criteria in calculating eligibility for Chapter 7 relief.  It is an extremely difficult and customized test of all available and actual income that requires years of legal practice and experience to interpret and apply to your fullest benefit.  With hard work and practice, we have qualified thousands of middle-and upper-income Connecticut households for full Chapter 7 relief.

DON’T FEAR!  The first step in examining families for Chapter 7 relief is an analysis of household income from all sources over a trailing six month period.  This income, doubled, becomes the determining household annual income for purposes of determining eligibility for “automatic” Chapter 7 relief with its full discharge of unsecured debt and no repayment.  Family size is determined by the number of dependents listed on the prior year’s tax return.  In Connecticut, the numbers are approximately:

Family of 1 –               $62,000+                   

Family of 2 –               $79,000+

Family of 3 –               $90,000+                   

Family of 4 –               $111,000+

All additional individuals –    $8,400 per person

For families who are over these median numbers, the 2500 law requires a “Means Test”.  This is a somewhat complicated analysis of your income and expenses over the past six months.  It utilizes formulated amounts of “allowable deductions” for certain expenses and overriding “actual deductions” for certain types of monthly expenses, such as mortgage payments, car loans, support obligations and others.

Excellent practitioners know how to use the fullest extent of the law to maximize client’s utilization of both elements of the examination, “household income” and “allowable expenses.”  The rules are complicated and extensive, but the key to Chapter 7 relief under the means test is good lawyering and full implementation of all aspects of means testing rules and regulations.  It takes work, but it’s worth it.

Understanding Canceled Debt

When a debt is canceled, such as a credit card, it can be a tremendous relief. It is easy to forget, however, that you need to declare canceled debts to the IRS. The IRS treats the cancellation of debt as income.

If you are already struggling to pay your bills, it can be difficult to imagine how you will pay for taxes on your canceled debt. At The Law Offices of Neil Crane, we can help you understand your options and properly avoid or resolve any outstanding tax debt issues you may have as a result of a canceled debt.

Taxes for Canceled Debt

When a loan is forgiven or a debt is canceled, you are required to pay taxes on that debt. This can include a wide range of debts, including:

  • Mortgages
  • Car loans
  • Credit card debt
  • Medical bills
  • Student loans

The IRS treats a forgiven debt as income for tax purposes. There are exemptions available in some circumstances. We have the full range of experience and knowledge to determine whether an exemption is available in your specific case.

If your canceled debt is more than $600, your lender is required to send you a 1099-C Cancellation of Debt form. Then, you will need to include that as part of your income taxes. If your canceled debt involves real estate, and your lender took your property in lieu of payment, you may be required to declare your gains or losses from the “sale” of your property.

Our attorneys understand how confusing tax concerns such as debt cancellation can be. We will clearly explain your legal options and your rights regarding your canceled debt. For example, if your canceled debt involves your principal residence, The Mortgage Tax Forgiveness Act of 2007 may provide relief. Under this act, you may not be required to pay taxes on debt that is canceled or reduced through modification or restructuring, so long as you meet certain forgiveness criteria.

Penalties for Nonpayment of Taxes

If you fail to pay taxes on your canceled debt, you could face serious consequences. The IRS or Connecticut Department of Revenue Services (DRS) can take your home, seize your assets or place a lien on your property. Additionally, penalties, interest and fees can build up if you delay in making payment.

Can I rebuild my credit after bankruptcy?

Individuals tend to have several questions that must be addressed before deciding bankruptcy is appropriate. These questions include what might happen to the family home, which debt is eligible to be discharged, as well as how bankruptcy might affect their life down the road.

Restoring Your Credit Score

One of the most common questions people have following the bankruptcy process is how they can restore their credit score. Obtaining new credit after bankruptcy can be difficult, but there are steps people can take to begin rebuilding credit for the future. These steps include:

  • Take on as little new debt as possible – debt to income ratio is an important credit score determinant.
  • Obtain a secured credit card if your previous cards have been cancelled (this will establish a positive payment history).
  • Pay off credit cards at the end of every billing cycle and avoid charging more than 30 percent of their limits.
  • Pay with cash whenever possible.
  • Avoid submitting multiple credit applications (credit scores take a hit with each inquiry).
  • Develop a budget and abide by a strict budget.

This list is not exhaustive, but following these recommendations can jump start even a recent bankruptcy filer on the road to a sound financial future. Bankruptcy is designed to give debtors a fresh start, so it is important to realize anyone can emerge from bankruptcy with a positive outlook for the future.

Anyone who is considering bankruptcy or wondering how they can rebuild their credit should speak with a qualified attorney immediately. The experience bankruptcy attorneys provide is invaluable before, during and after the bankruptcy process.

Post-Bankruptcy Credit Scores

Post-bankruptcy lending at low rates has never been more available than it is today. Lenders love post-bankruptcy customers – They have no debt. But you need to be more careful than ever, since high post-bankruptcy credit scores can become a trap, instead of a solution.

It is important to realize that your FICA credit score is not nearly as important as your debt-to- income ratio or your bank account balance. Learn to make your high credit score a tool for financial health and not an invitation to financial disaster. We offer many tips to improve and protect your credit rating after bankruptcy:

  • Budgeting is key – make a budget and stick with it
  • Get a credit card and pay if off every month – never carry a balance
  • Keep a credit card as credit and not as debt
  • Make down payments – do not buy houses or cars with no money down
  • Create a personalized layaway plan and save for large items

Credit Card Offers After Bankruptcy

Credit card solicitations will arrive immediately after you file for bankruptcy. Be careful. There are numerous ways that this can become a trap. Our experienced bankruptcy and debt relief attorneys, know how to make bankruptcy and debt relief the beginning of a solid high credit rating, lower interest rates and a sound financial future. Be certain to contact us to learn how we can make a difference in your credit life.

Begin Rebuilding Your Financial Health

We offer a free initial consultation to help you determine your eligibility and evaluate the proper path in your unique situation.  Call us today at 203-230-2233, or complete our online contact form.  When you call us, you will always speak to an attorney.  We do not use voicemail.  We are committed to providing excellent service and legal protection.

Understand what the options are to get rid of Credit Card debt