Can Credit Card Companies Fight a Discharge?

Posted by William Kain on December 17, 2018 at 8:44 PM
William Kain

Credit card debt is a major reason why people file for bankruptcy in Minnesota. Credit card debt can get out of control for many different reasons, some of which are beyond your control. If a household member loses a job or suffers a serious illness, you need to rely on credit cards to pay your bills and cover basic expenses. Meanwhile, you may only be able to afford the minimum monthly payment, which can result in excessively inflated balances due to high interest rates. Before you know it, you may see no possible way that you will be able to pay off your credit cards.

Chapter 7 bankruptcy can help many people in this situation. Credit cards are unsecured debt, meaning that your balances qualify for a discharge at the end of a successful consumer bankruptcy. However, the bankruptcy process can be more complex than you may imagine, and complications may arise that challenge your ability to discharge your credit card debt. One possible challenge is that the credit card company may try to fight the discharge. Creditors that appear at the 341 Meeting of Creditors may decide to object to the discharge of a particular debt for several reasons.

Recent Purchases or Cash Advances

Some people intending to file bankruptcy may decide to make some final purchases or cash advances using credit cards. After all, the debt will be discharged, so they think why not? However, this can often lead to an objection by a creditor. When you incur charges without any intention to pay, the law presumes that you meant to defraud your creditors and abuse the bankruptcy process. The following can lead to this presumption:

  • Charging $675 or more for luxury goods within 90 days before a bankruptcy filing
  • Taking out $950 or more in cash advances from one creditor within 70 days before a bankruptcy filing

Many different charges can fall into the “luxury” category for the purposes of this presumption. For example, elective cosmetic procedures, new furnishings that were purchased solely for aesthetic purposes, jewelry or perfume, recreational vehicles, unnecessary automobiles, expensive camera or electronics, and more. If an item is not reasonably essential to support yourself or the needs of your household, there is a chance it can be considered unnecessary and a luxury purchase.

Misrepresentations or Fraud on a Credit Application

Another basis for a creditor objection is a claim that you misrepresented your financial situation and ability to pay the debt on your credit card application. For example, consider the following:

  • Someone earns $40,000 per year
  • To get approved for a $10,000 credit line, they claimed they made $95,000 per year on the credit application
  • They were approved, maxed out the card, and now are filing for bankruptcy
  • The creditor learns via the bankruptcy documents that their income was misrepresented on the application
  • The creditor uses this fact to challenge the discharge of the debt

Many credit card companies will closely examine the accuracy of the information on your application and included in your bankruptcy filing to determine whether an objection is warranted.

Asset Transfers

In Chapter 7 bankruptcy, non-exempt assets and property can be seized and liquidated to pay your creditors as much as possible. The fewer non-exempt assets you have, the less your creditors will get paid. For this reason, you can bet your creditors want all possible assets accounted for.

In anticipation of a Chapter 7 bankruptcy, many people may be tempted to give property away or transfer ownership out of their name to protect the assets. This can only hurt your case, however. You can be sure that bankruptcy trustees will investigate any recent asset transfers within the past two years to see if the transfer was legitimate. For example, if you sold your motorcycle to your brother for the fair value of the bike, the transfer will likely be considered legitimate. On the other hand, if you sold your motorcycle to your brother for $10, it will certainly raise red flags. In this situation, the trustee can take the following actions under bankruptcy laws:

  • Recover the asset for any transfer within the past two years
  • Challenge the entire bankruptcy case for transfers within one year

Many people think they can manipulate the bankruptcy system by transferring assets or making last-minute credit card purchases. However, you should realize that these actions can be viewed as an attempt at bankruptcy fraud and can result in a dismissal without the discharge of all of your debts.

Contact Our Minnesota Bankruptcy Lawyers to Discuss a Possible Case

Always discuss any financial moves with your bankruptcy attorney before you file. Don’t make unnecessary large purchases, take out cash advances, or try to conceal assets. The attorneys at Kain & Scott want to help you receive the maximum benefit from your bankruptcy case. Call 800-551-3292 or contact us online for a free consultation today.

Topics: Credit card debt, Bankruptcy Discharge