Filing for bankruptcy often provides individuals with the opportunity to discharge credit card debt and gain a fresh start. However, creditors may challenge the discharge of credit card debt under certain circumstances.
Understanding when and why this occurs can help individuals prepare for potential obstacles.
Grounds for challenging credit card debt discharge
Creditors can challenge the discharge of credit card debt by filing an adversary proceeding. This is a lawsuit within the bankruptcy case where the creditor argues that the debt should not be discharged. The most common reason for this challenge is fraudulent activity. If the creditor believes the debtor incurred credit card debt without the intent to repay, such as making large purchases or taking out cash advances shortly before filing, they can claim fraud.
Timing of charges matters
One key factor in determining whether companies can challenge the discharge of credit card debt is the timing of the charges. For example, under Section 523(a)(2) of the Bankruptcy Code, purchases of luxury goods or services made within 90 days before filing for bankruptcy totaling over $800 are presumed fraudulent. Similarly, cash advances of $1,100 or more within 70 days of filing can also be fraudulent. Creditors often rely on these rules to dispute the discharge of debts.
Debtor’s responsibility in proving good faith
If a creditor challenges the discharge of credit card debt, it becomes the debtor’s responsibility to prove that they intended to repay the charges. Showing that they needed the purchases for basic living expenses or that they used cash advances responsibly may help counter the creditor’s claims.
Consequences of a successful challenge
If a creditor successfully challenges the discharge, the debtor will remain responsible for repaying the credit card debt even after the bankruptcy case closes. Understanding these risks can help debtors avoid complications and work toward a more successful bankruptcy process.
