Credit Card Debt—Avoiding the Presumption of Fraud in Bankruptcy

One of the common causes of consumer bankruptcy is unmanageable credit card debt. Because credit card debt is typically an unsecured obligation, you can generally discharge credit card arrearages in Chapter 7 without returning items purchased. However, if a creditor (credit card company) can show that you engaged in fraud when using the credit card, you may lose the right to discharge the debts and could risk having your entire bankruptcy petition thrown out.

The good news—it’s usually pretty difficult for a credit card company to prove fraud. The company would need evidence that you knew you were planning on filing bankruptcy and had no intention of repaying the debt when you incurred it.

You need to be careful, though, as there are specific types of transactions that the bankruptcy court will carefully consider when evaluating a filing for potential fraud:

• Certain cash advances made within 70 days of your bankruptcy filing—If you use a credit card for cash advances within 70 days of your petition, any amounts over $925 will be presumed to be non-dischargeable. You will need to provide evidence that you intended to repay the cash advance if want to try to discharge it.
• Luxury purchases in excess of $650 within three months of your filing—Certain types of purchases within 90 days of filing may be non-dischargeable. To qualify, such purchases must be for items that are not “reasonably necessary” to support you or your dependents. Groceries will generally be considered a non-luxury item, but a meal at a five-star restaurant may not. Vacations, clothes, jewelry, motor vehicles and electronics are also typically considered luxury items.

If the above-referenced time periods have expired before your bankruptcy filing, a purchase or cash advance may still be non-dischargeable, but the burden is on the creditor to prove fraud.

Contact Heath, TX Bankruptcy Attorney Carrie Weir

I offer a free initial consultation to all potential bankruptcy clients. Contact my office by e-mail or call me at 972-772-3083 for a private meeting. With offices in Rockwall, Texas, I represent clients in Heath, Greenville, Lavon, Wylie, Mesquite and Rowlett.