January 29, 2012
Credit Card Usage Before Bankruptcy
If you are considering bankruptcy and have used credit cards recently, you may be worried about being accused of fraud by a credit card company.
For starters let's look at what the Bankruptcy Code states:
[11 USC §523(a)(2)(C)(i)(I),
(I) consumer debts owed to one creditor and totalling more than $500 for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be nondischargeable.
(II) cash advances totalling more than $750 that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 70 days before the order for relief under this title, are presumed to be nondischargeable.
The majority of us do not wake up one morning and decide "Oh I think I'll file bankruptcy today". The decison for most is made after a long drawn out process that usually takes place over many weeks, months and sometimes years. During this time frame credit cards are often used to bridge the monthly budget gap and moving money around from credit card to credit card by convenience checks and balance transfers(convenience checks as well as balance transfers are conisered cash advances).
Charges of fraud as it relates to purchases and cash advances by credit card companies are rare unless they are obviously fraudulent or unless they are for an amount that makes it worthwhile for the credit card company to initiate and carry through with a lawsuit.
If you have made some large purchases, transfers or advances recently and have now decided to file for bankruptcy, you may want to play it safe and:
1.Pay at least pay 2-3 minimum monthly payments. This will show to some degree that you intended to pay your bills when you made the purchase, transfer or advance.
2.If you have transferred a balance or used a convenience check to transfer a balance of more than $7,000 you probably will want to make at least 6 minumum payments and wait a year before you file.
It most likely is going to take something around the $7,000 range or more for it to be worthit for a credit card company to dispute a transaction(s) and claim bankruptcy fraud. Keep in mind, the credit card company can only dispute the portion of the total balance which it believes is fraudulent. If the judge rules in their favor only that transaction(s) will not be able to be discharged through bankruptcy.
If the credit card company decides to file a lawsuit it is called an Adversary proceeding. A judge hears the case and makes a ruling.
Keep in mind, you will be under oath at your 341 meeting and even if none of your creditors show up at the meeting, you still could be asked specific questions about specific credit card transactions by the Trustee. It is best to stop using credit cards immediately after you have made the decision to file for bankruptcy. This will alllow you to be 100% honest at your 341 meeting and avoid having your case delayed or thrown out due to bankruptcy fraud. Using credit cards with no intention of paying them off is by definition, fraud. It is best to look at the "total picture" of your bankruptcy and the fresh, debt free start it will provide. You have other things to focus on such as saving up to purchase a house or perhaps you'll need to rent after bankruptcy. So the advice here is to play it safe with your credit card usage. You will prevent a lot of stress during your bankruptcy and make it more likely your bankruptcy will be fully discharged on time without problems.