Can I Include Recent Credit Card Debt in My Bankruptcy?

A job loss, a medical emergency or even an unexpected adjustment in your mortgage can leave you with few options for emergency cash other than your credit cards. Concerns about high interest rates, late payment fees and the stress of carrying large balances become secondary if you feel that a cash advance is your only choice.

As a consumer bankruptcy lawyer - I am based in Atlanta, Georgia - I frequently meet with clients who are not only carrying large balances but have the added problem of relatively recent use of their cards and recent access to significant sums as well.

Recently, for example, I met with a couple in their late 30’s who had used credit cards to prop up a failing retail business. In the last 12 months, they had incurred over $100,000 of debt and they had total credit card debt of over $500,000.

Even if you don’t have this much debt or this much recent debt, you might be facing a situation where you need to file bankruptcy but you are concerned that your recent credit card use might raise a red flag and create problems for you.

My experience with credit card debt has been as follows:

• when your total credit card debt owed to any particular credit card issuer is less than $15,000, there is a good chance that no one will look very closely at your account
• when your total credit card debt owed to any particular credit card issuer is between $15,000 and $25,000, they may look at your account, but you are unlikely to have problems unless there has been substantial access to that account within the past 12 months

• when your total credit card debt owed to any particular credit card issuer is over $25,000, a live person will look at your account and the credit card issuer may decide that it makes economic sense to retain counsel to object to discharge

• credit card lenders use computer programs to identify patterns of use. That is why your access to your card may be held up when you travel - if you live in Atlanta and charges start appearing from London, the issuer may call you to verify that you are, in fact, traveling and using your card. Those same computer programs can spot patterns of use. If you typically spend $500 per month, but, in the last 12 months, you spent $1,000 to $1,500 per month, the lender may argue that you were incurring credit card debt with no “reasonable expectation of repayment.” Section 523 of the Bankruptcy Code can be used to challenge such use.

I have found that time and good faith payments can help you avoid dischargeability challenges. I regularly advise my clients to wait three, six or even twelve months before filing to let their accounts age and to establish a paper trail of good faith payments. If the credit card debt is not too high, I would also encourage them to explore non-bankruptcy alternatives.

All this points to an obvious conclusion - the best time to seek legal counsel is at the beginning of a financial crisis, not after you have already made decisions in haste that may create unexpected and unknown problems. If you include recent and substantial credit card debt in your bankruptcy without exploring the consequences, you may discover that your bankruptcy relief can be more expensive and less complete.

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