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We see that people don’t generally consider filing for Chapter 7 bankruptcy unless they have too much debt accumulated to deal with. And in most cases, those I talk to weren’t just running around overspending thoughtlessly. Instead, what I usually hear is that there was a major event that triggered the debt overload. Sometimes it’s a serious car accident that resulted in piled up medical bills and time missed from work. For others it could be a job loss or break-up of a marriage.
Creditors usually understand this and accept a bankruptcy filing as a normal course of doing business. But sometimes financial companies that provide credit protest chapter 7 bankruptcies and will go to the court and ask that the amount you owe them NOT be discharged by the court. This is not terribly common – but it’s also not so rare that it might not happen to you. Here’s what you need to know about when this can happen.
Which debts are most likely to be objected to by creditors?
Usually, we see that it’s credit card companies that are mostly likely to object to a chapter 7 debt discharge. There are two types of challenges a creditor can raise. They can either object to the entire bankruptcy or just the discharge of the debt you owe to their company. Most discharge challenges are based on accusations of fraud.
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How can the creditor prove fraud to get the discharge dismissed?
If you weren’t honest on your credit card application, this can demonstrate fraud. If you lied about your income or perhaps you recently lost your job but still listed yourself as employed or any other piece of misinformation, this can be grounds for dismissal. But the more common reason is an accusation that you used your credit card with no intent to repay.
For instance, if you knew you were planning on filing bankruptcy and maxed out all your credit cards a few weeks or months before, that would constitute fraud and would very likely lead to dismissal of the discharge of that debt (or the whole bankruptcy).
How can you avoid an accusation of fraud when you file chapter 7?
Some (or all) of your credit card debt could be excluded from discharge if the court determines you engaged in “abuse of the bankruptcy process due to the intent of the use of a credit card.” Under Title 11 (the bankruptcy code) in § 523 it specifies that if you charge more than $650 on a single credit card for luxury goods or services within 90 days before filing or take out cash advances from credit cards that exceed $925 within 70 days before filing bankruptcy then those debts will not be discharged.
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Is it only large charges that will make the creditor challenge your bankruptcy?
While large charges before filing chapter 7 are a red flag that may attract the attention of the court or creditors, even smaller charges can be an issue. Frequent use of cards right before filing – even if you’re only making small charges – can cause you to have your whole case tossed out of bankruptcy court. I recommend that if you’re considering filing bankruptcy that you not use your credit cards at all for at least three to four months prior to filing.
Have more questions about credit card debt and bankruptcy?
If you have used your credit cards recently and are worried about the timing of a bankruptcy filing, you should talk to a reputable North Carolina bankruptcy attorney like John T Orcutt about your specific circumstances. Contact our office for a free consultation about your debt dilemma and take advantage of our expert advice on filing bankruptcy so you can get the financial fresh start you need!