Many individuals file for Chapter 7 or Chapter 13 bankruptcy solely to have overwhelming credit card debt discharged. Fraudulent credit card use or obtaining a credit card under fraudulent pretenses can give a credit card company the right to contest the credit card debt being included in the bankruptcy case. This leaves the individual on the hook for the debt even after the bankruptcy discharge
Obtaining a Credit Card Fraudulently Can Prevent Bankruptcy Discharge
Many individuals who obtain a new credit card under fraudulent pretenses aren’t even aware that they did so. One of the most common mistakes consumers make when filling out a credit card application is to list their income as higher than it actually is.
Another error that constitutes credit card fraud is to list temporary or seasonal income as permanent income. Regardless of whether the consumer was enjoying the proceeds from his temporary or seasonal income at the time, the mere fact that he knew the job wasn’t permanent may give his credit card company the right to claim that his application was fraudulent.
Credit Card Use Before Bankruptcy May Be Credit Card Fraud
As soon as an individual knows that he may need to file for either Chapter 7 or Chapter 13 bankruptcy, he is expected to immediately stop using his credit cards. Because the risk of individuals accruing new debt on their credit card accounts and then seeking a bankruptcy discharge of that debt is high, the U.S. Bankruptcy Code makes provisions for creditors to contest a bankruptcy discharge of credit card debt incurred in the following ways:
- Credit card debt over $500 accrued in the 90 days prior to filing for bankruptcy
- Using a credit card any time after visiting with a bankruptcy attorney
- Cash advances over $750 obtained in the 70 days prior to filing for bankruptcy
- Credit card use while unemployed
- Credit card use without the available funds to reasonably make minimum payments
See: Know When to File Bankruptcy
Credit Card Company Must Contest Debt for a Bankruptcy Discharge
Even if a consumer clearly committed credit card fraud, that debt may still be discharged in a Chapter 7 bankruptcy or significantly lowered in a Chapter 13 bankruptcy unless the credit card company formally contests the debt’s discharge with the bankruptcy judge. The credit card company must also provide the bankruptcy judge with proof that credit card fraud, rather than simple bad judgment, occurred.
In some cases, credit card fraud can be difficult to prove. Individuals should keep in mind that credit card companies will have access to a consumer’s financial records should they opt to attend the meeting of creditors–making some cases of credit card fraud much easier to prove.
See: The 341 Bankruptcy Meeting–The Meeting of Creditors
Credit Card Fraud Claim More Likely in Chapter 7 Bankruptcy Case
Credit card companies, however, are much more likely to contest a debt’s inclusion in a debtor’s bankruptcy if that debtor files for bankruptcy under Chapter 7 rather than Chapter 13. Although Chapter 13 does allow for certain debts to be lowered at the court’s discretion, the individual will still be expected to repay the debt over a three to five year period. Chapter 7 bankruptcy allows a debtor to have all of his unsecured debt that cannot be paid through the liquidation of his assets discharged. This gives creditors more incentive to contest a bankruptcy discharge of credit card debt with the court.