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Extinguishing Credit Card Debt in Bankruptcy

Avoiding the Presumption for Fraud for Credit Card Purchases

If you’re seeking bankruptcy protection because your credit card debt has become unmanageable—you’re not alone. It’s one of the most common reasons consumers file for Chapter 7 bankruptcy protection. In addition, because credit card debt is considered unsecured, you can discharge (permanently rid yourself of) credit card debt without having to return any goods purchased. You have to be extremely careful, though. If you run up credit card bills, then seek to discharge them shortly thereafter, the court may conclude that you intended to do so…and that can be considered fraud.

So how do you avoid potential problems with the bankruptcy court? First, you should be aware that it’s difficult, time-consuming and expensive for a credit card company to prove fraud. Fraud requires intent, so the credit card company must produce evidence that shows that you knew you were planning on filing for bankruptcy and had no intention of honoring the commitment. Absent written statements from you, that’s pretty hard.

Nonetheless, there are certain types of transactions that the court will consider with increased scrutiny:

  • Cash advances within 70 days of the date you file for bankruptcy protection—For cash advances in excess of $925, there’s a presumption of fraud, if the advance takes place within 70 days of your petition. To overcome the presumption, you must produce evidence that you intended to repay the advance when you took it.
  • Luxury purchases within 90 days of your bankruptcy petition—Certain non-necessary items, such as vacations, clothes, electronics, cars and meals at high-end restaurants may be non-dischargeable, if made within three months of your filing. This rule generally applies to any items not “reasonably necessary” to support you and your family.

Advances and luxury purchases made outside the time frames referenced above may still be non-dischargeable, but the burden shifts to the creditor to prove fraud.

Contact the Law Offices of Howard N. Sobel

Protect your rights when evaluating the benefits of a bankruptcy filing. For professional and knowledgeable legal counsel with a personal touch, contact our office by e-mail or call us at 856-424-6400. We are available evenings and weekends upon request.