As you can probably guess, excessive credit card debt is a major contributor to forcing people into bankruptcy protection in Atlanta, although the credit card debt is more aptly characterized as an indirect cause since job loss and medical bills are the more common root causes of families beginning to rely on credit cards for survival prior to bankruptcy. Regardless of whatever caused your current financial problems, you should err on the side of caution with any credit card usage prior to filing bankruptcy. In fact, certain credit card usage prior to filing bankruptcy can interfere with your ability to wipe out your debts in bankruptcy. Here are a few things you need to keep in mind regarding credit card usage prior to filing:
1. Any credit card usage with 90 days of filing will raise a red flag.
Section 523(a)(2) of the Bankruptcy Code provides that consumer debts owed to a single creditor amounting to more than $500.00 for luxury goods or services and incurred within 90 days of filing bankruptcy will be presumed non-dischargeable. The code goes on to provide that any cash advances amounting to more than $750 emanating from a consumer credit account and obtained by an individual within 90 days of filing for bankruptcy will be deemd non-dischargeable. What this means is that any credit card usage within 90 days of filing for bankruptcy will be red-flagged by the creditor and could possibly draw a dischargeability complaint, regardless of whether luxury goods were purchased with the card or not. This complaint is essentially a pleading filed by the credit card issuer objecting to its debt being wiped out in bankruptcy. While the creditor will have to prevail in its suit to successfully have its debt deemed non-dischargeable, most bankruptcy attorneys do not include litigation representation in the flat-rate bankruptcy fee, so regardless of the outcome, you will be spending money. The best practice is to stop all credit card usage within 90 days prior to filing, and especially be wary of any cash advances. Obviously, do not take a luxury cruise to Alaska and file bankruptcy the following week.
2. Do not transfer balances from a high-interest card to a low-interest card prior to filing.
This type of transaction is categorized as a cash advance and will be presumed non-dischargeable if made within 90 days of filing. Something else to consider is that a credit card issuer can also sue a debtor under 523(a)(2) for obtaining money, property or services through fraud, which can be proven by circumstantial evidence of the debtor’s intent never to repay the debt. For this reason, try to make the minimum payments on your credit cards to show a good faith effort to pay the debt on your cards prior to filing. Remember, defending dischargeability suits is not cheap, and you will be paying your lawyer a lot of money to do so if you aren’t careful with your credit card usage prior to bankruptcy.
3. Credit Card debt incurred with no expectation of repayment on behalf of the debtor cannot be wiped out.
Clients will often ask about the $30,000.00 they racked up on big screen TV’s, round-the-world vacations, and tax payments 6 months prior to filing. While these charges fall outside the 90 day presumption period, a creditor can also stir up problems for the debtor by filing an objection under section 523(a)(2). A creditor can prevail under section 523(a)(2) if it can prove that the debtor incurred the debts without the intention of repaying.
Sometimes, honest, hardworking debtors incur large amounts of credit card debt prior to filing. This is why consulting with a bankruptcy attorney is of the utmost importance prior to filing. To help avoid a dischargeability complaint, follow the suggestions above and make sure to not make any big-ticket purchase prior to filing. Credit card companies were one of the most influential lobbyist for the 2005 bankruptcy reform legislation, and the current state of the law reflects this fact.