| Challenges to credit card debt discharge. |
| Credit card issuers sometimes challenge the discharge of their debt in Chapter 7 by filing an adversary proceeding claiming that the debt was incurred by fraud and therefore should be excluded from the discharge. This is sometimes called a "non-dischargeability action". Credit card debt may be non-dischargeable in bankruptcy under two legal theories: • The application submitted to get the card was fraudulent • The card was used without an intent to repay 11 U.S.C. 523(a)(2). What are they looking for? While each card issuer has a different policy about non-dischargeability actions, each of the following circumstances may increase the likelihood that the debt may be subject to challenge by the creditor: • Increase in credit card usage shortly before filing • Newly issued card • Large cash advances in months before filing • Use of card for recent travel or vacations • Pattern of borrowing on one card to make payments on others • Exceeding credit limit • Using card when unemployed or without reasonable belief that the debt can be repaid • Large balance at filing • Charges made after consulting bankruptcy lawyer Generally, the longer the length of time between any particular use and the bankruptcy filing, the less likely the usage will trigger a challenge to dischargeability. What options are available? If you are concerned about a challenge by a credit card issuer to the discharge of a particular debt, there are several strategies available: • Wait to file bankruptcy so as to put more time and/or more payments on the account between the questionable usage and filing bankruptcy. • Settle with any objecting creditor if and when they file a non-dischargeability action • Contest the suit at trial: if you win, you may recover your attorney's fees incurred to defend the action. • File Chapter 13, when creditors are paid even a small amount of the debt, they rarely challenge the discharge. |