Many Americans find themselves left in a position where they are financially crippled by their credit card debt, leaving them with no option but to declare bankruptcy. Recent estimates show that Americans owe roughly 920 billion in credit card debt.
In situations where you’ve accrued this debt in an honest, if careless, manner then courts will view it as dischargeable debt. If, however, there’s any question of fraudulent use of your card then the credit card company might issue an adversary proceeding against you. This is basically their way of saying they don’t believe that your debt is legitimate and should not be discharged by the bankruptcy courts. Creditors will often conduct extensive investigations into your use of the credit card, to ensure that fraud hasn’t taken place.
Credit Card Fraud Defined
This type of fraud can take two basic forms. The first is that you lied on your credit card application, making false income or asset claims, in the hope of being given a higher credit limit. Although some people might take this route, it’s not as common as the other reason – that you deliberately used your credit card in a fraudulent manner, hoping that the debt you incurred would then be discharged as part of your bankruptcy filing.
Here are some examples of credit card fraud which create the possibility that this particular debt won’t be discharged:
- You knew you were going to file for bankruptcy, but continued using your credit card to make purchases
- You charged goods of more than $600 in value within 90 days of filing for bankruptcy
- You made cash withdrawals of more than $875 within 70 days of filing for bankruptcy
- You had consulted with an attorney about declaring bankruptcy, but continued to use your credit card to make purchases
- You used the card to purchase luxury items shortly before declaring bankruptcy
- You continued to use the card even when your financial status was questionable
- You charged several high-ticket items to the card in one day
- You did not make any further payments on your card after recent charges were made to it
If you can answer “Yes” to any of the above then your creditors stand a very good chance of being able to claim that you used your credit card fraudulently and then petition the courts to not discharge your debt.
Your Defense
If you’re filing for Chapter 7 (full discharge) then it might be an idea to file for Chapter 13 instead because this type of bankruptcy allows you to create a repayment plan on your credit card debt, and often just a fraction of the original debt.
More so than anything else you need to speak to a bankruptcy attorney as soon as you possibly can, while also gathering together credit card statements covering the last 12 months, at the very least. A complete record of your personal finances over the last few years will be the best way you for to prove that you did not use your credit card in a fraudulent manner.
Final Note
If you have been the victim of actual credit card fraud (cloning, skimming, etc.) then that debt is dischargeable in a bankruptcy filing. You will, however, need to provide proof that you are the victim of a financial crime, and not that you perpetrated one yourself.