In a Chapter 7 bankruptcy case, the primary objective for debtors is to discharge unsecured debt. For most debtors, some or all of their unsecured debts occurred long before they decided to file bankruptcy. With few exceptions, those debts should not pose a problem in the bankruptcy and should be discharged. Examples include old credit card debt, medical bills, personal loans taken out years ago, and old utility bills.
Debts that are created closer to the time of the bankruptcy, however, can be a problem depending on the circumstances. For example, a credit card company can file a complaint in a bankruptcy case contending that the use of the card (or a portion of the use) was fraudulent or under false pretenses. In such a complaint, the credit card company would ask the judge to disallow the discharge of their debt. Most complaints by creditors are for obvious reasons such as a flurry of activity on a credit card just before the filing date. If the purchases were for luxury items such as vacations, expensive electronics or jewelry, the complaint becomes more likely. Large cash advances close to a bankruptcy filing can also provoke complaints.
Creditor complaints are not common because the creditor still needs to win or they are just wasting money by filing the complaint. Moreover, the amount needs to be high enough to make it worth the challenge. However, if circumstances suggest that the debtor used credit while they were insolvent, or while they were planning to file bankruptcy, creditors will not hesitate to contest the discharge.
The bankruptcy code gives the creditor an advantage in such complaints if the use of the card was in the 90 days prior to the bankruptcy filing date, and the use was for “luxury” items. When a debtor and their attorney are planning the best filing debt, recent credit card use should be discussed and evaluated to lessen the chance of a complaint from creditors.
It is important to discuss your debt situation with an attorney prior to filing a case to make sure that the bankruptcy will accomplish your objectives.
For more information or a consultation, please call 661-210-5657, or e-mail mjf4bk@ca.rr.com.