There are two basic ways to blow your chance to discharge the balance on your credit card in bankruptcy:
1. Lie on the credit application to get the credit
2. Use the card fraudulently
Use the card fraudulently
Credit card charges may survive a bankruptcy filing if they were incurred by false representations or actual fraud. Since no one plunks their card down with the announcement that they don’t really intend to pay the issuer, courts have had to find ways to infer what’s in your head when you make that purchase with plastic.
The legal fiction that has grown up is that when you present your plastic to pay for a purchase, you make a representation that you intend to pay the issuer. If that weren’t so, the entire credit card industry collapses.
Credit card issuers, then, are looking for evidence that the bankruptcy debtor didn’t intend to pay. They look to the facts that appear on the card statement and ask courts to infer from those facts the debtor’s state of mind.
What triggers the assumption the use was fraudulent?
Dramatic run up in account balance shortly before bankruptcy filing
Purchase of non essentials
No payments after significant purchases
Going over limit
Continuing use right up to bankruptcy
This list isn’t exhaustive, but it touches the things the creditor can see from its records and use to form a conclusion that the debt wasn’t incured with an intention to repay. Here’s more factors courts consider when looking for fraud.
Part of my charge to clients when we first meet to discuss bankruptcy is to stop the use of credit cards. It is hard to argue to a judge that even though you’ve met with a bankruptcy lawyer, you really did intend to pay when you swiped your card the next week for a weekend getaway.
Another time, we’ll talk about responding to the charge that card use was fraudulent.
In the mean time, if you are considering filing bankruptcy, remember that your use of your credit cards, even within the card limits, is subject to scrutiny in your bankruptcy case. If proven fraudulent, those charges may be with you for the New Year and beyond.
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seek bankruptcy protection under federal law