At the beginning of the school year, I charged books for my classes and a computer on my credit card. It’s now the end of the year, my financial circumstances have taken a turn for the worse, and I need to file for Chapter 7 bankruptcy. I’ve heard that loans for educational expenses cannot be discharged in bankruptcy. Does this mean that I cannot wipe out my credit card debt related to the books and computer?
Credit card debt is exactly the type of debt that is usually discharged in Chapter 7 bankruptcy. The fact that you used your credit card to buy expenses for school does not matter in your case – the special rules that apply to student loans in bankruptcy do not apply to credit card debt.
Credit Card Debt Is Usually Wiped Out in Bankruptcy
In Chapter 7 bankruptcy, you can wipe out most types of unsecured debts (unsecured debts are those that do not have a piece of property tied to the loan, guaranteeing payment). In return, you may have to give up certain property to the bankruptcy trustee, who will sell the property and use the proceeds to pay some of your unsecured debt. (Most Chapter 7 debtors have to give up any property, however. To learn why, see Exemptions in Chapter 7 Bankruptcy.)
Credit card debt fits squarely within the category of unsecured debt that is discharged in bankruptcy. There are a few exceptions for fraud and if you use your card to purchase luxury items shortly before bankruptcy, but those won’t apply in your case.
Student Loans Do Not Include Ordinary Credit Card Debts
You are correct that student loans get special status in bankruptcy. In order to discharge loans taken out to pay for educational expenses, you must bring a separate action within your bankruptcy case (called an adversary proceeding) and prove to the judge that paying your loans would cause you an undue hardship. This is not an easy standard to meet. (Learn more about the undue hardship standard for discharging student loans in bankruptcy.)
However, the Bankruptcy Code does not include credit card debt in the definition of a student loan for purposes of the bankruptcy discharge. So you can discharge your credit card debt, even though it was used to pay for educational expenses like books and a computer.