06 Dec The trick to discharging credit card debt-Part Two
Credit card debt is dischargeable in bankruptcy unless the debt was incurred by fraud, as I explained in an earlier article on credit cards in bankruptcy. Fraud, in this context, is incurring the charge without the intention to repay. In some circuits, incurring a debt you know you can’t repay is within the definition of fraud.
So, how does the card issuer conclude that credit card charges were incurred by fraud?
Card issuers generally look at activity on the card in the months before the bankruptcy filing. These things, alone or in combination, suggest fraud to the creditor:
- Larger than usual charges
- Increase in activity closer to filing
- Large cash advances
- Discretionary purchases or travel
- Going over limit
Of course, at a distance, the card issuer has no idea of the back story behind any purchase or cash advance. They take a scatter gun approach:if I’ve been hurt at a time when the debtor “must have known” they were going to file bankruptcy, then it must have been fraud.
I advise clients when we first meet to stop using credit cards. It would be a very difficult argument to make that the client really intended to repay charges made after meeting with a bankruptcy lawyer.
Identify those transactions that will stick out in a creditor’s review of pre bankruptcy usage; continue making payment on that card until the case is actually filed.
An alternative when money isn’t available to continue paying on problematic cards is to wait to file the case. In general, the passage of time heals credit card hurts.
A little care in analyzing the pre filing usage of credit cards can reduce greatly the likelihood of a challenge to the dischargeability of a portion of a credit card balance.
Cathy Moran, Esq.
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