In most cases of bankruptcy, the debtor is not expected to part with the assets that he bought with the credit card. However, there are a few exceptional scenarios, in which parting with the charged assets is inevitable.
Security Agreement in Credit Card Contracts
Your ownership of the item, bought with a credit card, depends on the ‘clause of security’ in your credit card agreement. You get the same security agreement while getting a car loan. The bought stuff acts as collateral for your debt, and you cannot be its legal owner unless you clear your complete debt. The stuff in question is forfeited and is repossessed by the creditor, in case of the debtor’s inability to pay the said amount.
Typically, the inclusion of a security agreement in a credit card contract depends on the type of credit card lent by the creditor. Normally, there is no security agreement for debtors with major credit cards, like MasterCard, Visa or American Express. On the other hand, jewelry stores or departmental stores like Best Buy or Macy’s, provide security agreement to their debtors.
What Happens to Items Subject to a Security Agreement?
In case of bankruptcy, the security agreement requires the debtor to either pay the money for the bought stuff or to return the stuff to the creditor. However, there are a few circumstances, under which you can still keep the property in question.
- Personal property items can be retained by working out a good deal, in case you want to keep any of them.
- Old and obsolete items are usually undesirable by the creditors.
- Department store creditors usually claim the repossession of major purchases, called ‘white goods’, like television or washing machines. They don’t take back the ‘soft goods’, like clothes, video games, mattresses or DVDs.
Owning the Charged Items
When you pay a certain amount of money to the department store creditor, it discharges the oldest unpaid balance. As soon as you make the payment for the oldest bought item, it legally becomes yours. Your next payment gets credited against the next oldest balance, and so it goes on.
When you purchase things using major credit cards, the bank pays the store for them, and thus they automatically become yours. The store doesn’t hold any claim over them. Moreover, all the major credit card debts get discharged in bankruptcy, and all the bought things like furniture, normal appliances and clothes become your “exempt” property.
What Happens to the ‘Non-exempt’ Assets bought using Major Credit Cards?
In case of a Chapter 7 bankruptcy, the bankruptcy trustee is allowed to sell your ‘non-exempt’ assets, in order to pay the debts to your creditor. Inexpensive and daily-use items like clothes, furniture, etc. are exempted, but you may have to part with your expensive jewelry and other assets which don’t come under the ‘exempt’ category by the state law. For more information, visit the website https://www.recoverylawgroup.com/ or contact 888-297-6203.