It is rare for a credit card company to challenge the validity of your entire bankruptcy (it would do this by seeking to dismiss your case). It is more likely that a credit card company would cause you trouble by objecting to the discharge of its particular debt.
Seeking Dismissal of Your Bankruptcy Case
Usually, the only parties that will try to dismiss your entire bankruptcy case are the bankruptcy trustee or another government official. However, if you file a Chapter 7 bankruptcy, a creditor does have the right to ask the court to dismiss your bankruptcy if it appears that the bankruptcy filing is an abuse of the system -- for example, because your income and expenses show that you should be filing Chapter 13 instead. In that case, a court may dismiss your case or convert it to a case under Chapter 13. It is rare for creditors, especially credit card companies, to make this request. A credit card company with a bone to pick is more likely to seek nondischargeability of its particular debt.
(To learn more, see When Your Bankruptcy Case Is Dismissed.)
Objecting to the Discharge of Its Debt
When you file bankruptcy, you typically do so hoping to obtain a discharge of all your general unsecured debts, like credit card debt. (To learn more about the bankruptcy discharge, visit our Bankruptcy Discharge topic area.) Credit card debt is generally completely dischargeable -- that is, you can wipe it all out in a Chapter 7 case, and in a Chapter 13 case, you only have to pay a percentage of it and can wipe out the rest.
However, a credit card company can ask the court not to discharge the debt you owe to it. If the court agrees, you'll be able to get rid of your other unsecured and credit card debts, but you won't be able to wipe that particular credit card debt.
What Are the Grounds for Objecting to the Discharge of a Credit Card Debt?
A credit card company can object to the discharge of the debt if fraud was involved. For example, if you lied on your credit card application or incurred lots of debt that you knew you couldn't repay, the company might challenge the discharge of the debt.
When Fraud Is Presumed
There are special rules when you incur credit card debt shortly before filing for bankruptcy. In the below situations, the court will presume that you incurred the debt fraudulently. That means that if the credit card company brings a complaint to determine dischargeability, the burden is on you to prove that you didn't incur the debts with fraudulent intent or that the purchases were not luxury goods.
- you charge at least $650 in luxury purchases (purchases for non-necessary goods or services) from any one creditor within 90 days before your bankruptcy filing, or
- you take out at least $925 in cash advances from any one creditor within 70 days prior to your bankruptcy filing.
In these cases, the credit card company will usually send you a demand letter asking you to repay the debt or agree to pay it back after the bankruptcy is over. If you don't respond, the credit card company will have to file an adversary proceeding in the bankruptcy court to get a judgment saying the debt is nondischargeable.
(To learn more, see Does Chapter 7 Remove Credit Card Debt?)
How to Avoid Trouble With Credit Card Debt in Bankruptcy
The best way to ensure that your credit card debt will be wiped out in bankruptcy is to be honest when filling out credit card applications, disclose all of your income and expenses in your bankruptcy paperwork, and stop using your credit cards for at least 90 days before filing bankruptcy.