The most common reason individuals file Chapter 7 bankruptcy is to get rid of unsecured debt, such as credit card debt and medical bills. For the most part, credit card debt is eliminated in bankruptcy. However, there are certain circumstances in which credit card debt is not dischargeable.
The bankruptcy code does not provide a specific list of debts which are dischargeable; instead, it lists what constitutes a non-dischargeable debt. When it comes to credit card debt, unless it fits in one the following categories, it is dischargeable in Chapter 7 bankruptcy.
The following categories of credit card debt won't be discharged in Chapter 7 bankruptcy.
If you run up more than $675 (as of April 2016) or more to a single creditor for the purchase of luxury goods or services within 90 days of filing bankruptcy, the law presumes that your intent was fraudulent, and therefore the debt won't be dischargeable. For example, if you use your credit card to go on a cruise and file bankruptcy the following month, if the total amount charged was more than $650, it may not be discharged in the bankruptcy.
Cash advances on credit cards totaling more than $950 (as of April 2016) incurred within 70 days of filing bankruptcy are also presumed to be incurred with a fraudulent intent and are most likely not dischargeable. As with the luxury goods rule, this is an attempt to discourage insolvent people from incurring additional debt just to have it forgiven in bankruptcy.
Any debt resulting from credit extended due to fraud, materially false statements, or false representation is non-dischargeable. This not only applies to credit cards but all types of debt in bankruptcy. More and more, credit card issuers are challenging the dischargeability of credit card debt due to fraud. Here are some things courts will look at in determining if the debt was incurred through fraud.
Just because the credit card issuer challenges the dischargeability of your credit card debt doesn't mean you are on the hook for the debt. If you disagree with the card issuer's assessment of the debt, be prepared to litigate the issue in bankruptcy court. Doing so if often complicated, and you may want to consult with an attorney. If you decide to litigate it alone, get a good self-help manual, like Represent Yourself in Court, by Paul Bergman and Sara Berman (Nolo).