The dirty tactics of credit card companies have been public knowledge for years, but it's only recently that the government has begun taking steps to protect consumers from some of their worst methods. Unfortunately, the Bankruptcy Code reforms that passed in 2005 were basically written by the credit card companies, who paid millions in lobbying dollars to cram the bill through. It should come as no surprise that these companies will try anything to make your bankruptcy explode in your face. The very same companies that employed their most persuasive tricks to get you to spend beyond your means will make an about face during your filingÂ and accuse you of fraud.
It used to be possible to avoid the credit card fraud challenge by declaring bankruptcy under Chapter 13, but one of the changes to the Bankruptcy Code added in 2005 was to get rid of this option. Thus, it used to be that even people who had obviously taken out credit cards with the full intention to abuse the system would be absolved by committing to three years of diligent payments. People who genuinely had not committed fraud but were afraid of facing such a complications could opt for Chapter 13 to save the hassle. But not anymore. Nowadays, even a Chapter 13 filing is vulnerable to a challenge of fraud from credit card companies.
The credit card companies' argument basically goes like this: even though they sent you a pre-approved credit card, they knew you weren't working, and they looked at your credit report before approving the account, you acted fraudulently by incurring debt and subsequently filing for bankruptcy. However, from a legal standpoint, it's very difficult for a creditor to prove that at the time you incurred your debt, you did not intend to pay it back. The burden of proof is on the creditor, and it is especially a tough sale if the majority of debt was incurred months or years prior to the bankruptcy filing.
It's important for courts and consumers alike to make the credit card companies carry the burden of proving their case. Know that you have the opinion of many courts on your side. Some courts have found that credit card companies that had the ability to look at a credit score but extended a credit card to someone with demonstrably bad credit cannot claim that that person behaved fraudulently in opening the account.
Sometimes credit card companies will advance the argument that you lied in the statement of your financial situation, but these days, when they ask for so little information to begin with on the forms, this argument doesn't hold water. In order to prove that you committed fraud when you stated your income, the credit card company doesn't have a slam dunk just because it can show that your actual income was lower than what you reported. They actually need to prove that you knew your statement of income was false, that it was your intention to mislead the creditor, and that, had the company been the wiser, they would not have approved your application. If it sounds like a pretty tall order, that's because it is.Â It rarely works.
Although fraud allegations can be daunting, they are extremely rare. If they do come up, don't be afraid to challenge them. Your bankruptcy attorney will help you analyze your situation to see if the challenge is likely, but remember that the burden is on the company to prove their claim.