In a Chapter 7 bankruptcy case, the primary goal for most debtors is to discharge unsecured debt. That includes credit cards, medical bills, personal loans, and even secured loans when the debtor is surrendering the security (such as a car or home).
Many debtors are aware that the bankruptcy code does not allow the discharge of some unsecured debts. Recent tax debt, student loans, government fines and penalties, child support and alimony are a few examples of non-dischargeable debts.
However, debtors are not always aware that some of the normally dischargeable debts can be challenged under certain circumstances. A credit card company can challenge a debt as non-dischargeable if they feel that the credit was obtained under false pretenses or fraud. This is most commonly done when there is a flurry of activity on a card right before a bankruptcy is filed. Perhaps, a $15,000 vacation bill for a trip to Hawaii three weeks before the bankruptcy is filed or purchasing a large-screen television one month prior to a filing. A large cash advance can also trigger a complaint by a creditor.
The basis for the challenge does not have to be as obvious as the two examples above, but the creditor does need to have a good case, or the bankruptcy judge could decline the request, allow the discharge of the debt and charge the creditor for the debtor’s attorney’s fees to defend the complaint.
Under the bankruptcy code, the creditor gets an advantage in their challenge if the debtor has used the card in the last 90 days to purchase “luxury” items above a certain amount. Thus, when a debtor and their attorney are planning the timing of the filing, recent credit card use may be a reason to delay the filing depending on the amount spent, the items purchased and the date of use. The best result is to avoid complaints altogether.
It is best to speak with an attorney prior to filing bankruptcy to evaluate the likelihood of challenges by creditors, and to maximize the effect of the bankruptcy discharge.
For more information or a consultation, please call 661-210-5657, or e-mail mjf4bk@ca.rr.com.