Pre-Bankruptcy Credit Card Charges: Can You Discharge Them?

Credit card charge made before you file for bankruptcy might not be discharged, if the court decides that you knew you wouldn't repay them.

Many people file for bankruptcy to get rid of credit card debt. Along with other unsecured debts (such as medical bills and lawsuit judgments), credit card debt is typically discharged in bankruptcy. Once your case is over, credit card debt will be wiped out.  

This isn't always the case, however. If the credit card issuer believes that you ran up charges fraudulently, with no intent to pay them, it might convince the court not to discharge the debt.

What Makes Charges Fraudulent?

Generally, credit card charges might be considered fraudulent if you lied to get credit or ran up charges that you knew you wouldn't repay. There are two specific transactions that courts will deem fraudulent  if the credit card company raises the issue:  

  • charges of $675 (as of April 2016) or more for luxury goods or services within 90 days before you filed for bankruptcy.
  • Cash advances totaling more than $950 (as of April 2016) within 70 days before you filed for bankruptcy.  

Beyond these transactions, a credit card issuer can challenge any charges it believes to be fraudulent. In considering the card issuer's claims, the court will look at all of the circumstances. Timing is important: If you run up large bills or go on a shopping spree shortly before filing for bankruptcy, for example, the court may find that you knew you would file for bankruptcy and never intended to pay the bill. Misuse of your card is a red flag, too. For instance, if you keep using the card even after the issuer has sent a number of past due notices or use it only for purchases of $50 or less (so the merchant won't pre-clear the charge and find out that you've exceeded your credit limit), that won't look good to the court. Making charges when you are clearly unable to pay even the minimum amount due on your account is also a no-no. If, for example, you've lost your job and have no other income or savings, continuing to use your card might look like an effort to defraud the company.  

The Creditor Must Object and Win

The default rule in bankruptcy is that credit card debt is discharged. A credit card issuer who believes you engaged in fraud must object to the discharge of that debt by filing a "Complaint to Determine Dischargeability of Debt." Then, the credit card issuer must appear before the judge and explain why the debt is fraudulent. You will receive a copy of the complaint  and will have an opportunity to respond in writing and in court, explaining why the debt is not fraudulent.  

Getting Legal Advice

If you are facing a credit card issuer's challenge in your bankruptcy case, you should almost certainly consult with a lawyer. If the court rejects the credit card issuer's claim and rules in your favor, it may even order the issuer to reimburse your attorney fees for this part of the case.  

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