Will Chapter 7 discharge your recent credit card debt?

On Behalf of | Jul 26, 2018 | Firm News |

If your Florida credit card debt is so out of hand that you face bankruptcy as your only way out of overwhelming debt, you should stop using your credit cards once you make the decision to file for it. As you likely know, Chapter 7 bankruptcy discharges virtually all of your consumer debt, including your credit card debt. However, it may not discharge the credit card debts you incur within 90 days of filing.

Section 523(a)(2)(C)(I) of the Bankruptcy Code includes a presumption against discharge of any credit card debt you acquire on each of your credit cards for consumer goods purchases totaling $675 or more.

Recent bankruptcy case

The Bankruptcy Court for the Northern District of West Virginia recently addressed this issue. The case involved a Chapter 7 debtor who took out an $8,000 cash advance on one of her credit cards two months prior to filing bankruptcy. The bank that issued her credit card challenged the discharge of this debt based on the Bankruptcy Code’s presumption. The household goods and services the woman purchased with the cash advance monies clearly exceeded $675.

The Court, however, noted that the presumption is rebuttable, meaning that a debtor can overcome the presumption against discharge if (s)he presents clear and convincing evidence that the presumption does not apply to him or her. In this case, that is exactly what the debtor did. She gave testimony, supported by documentation, which the Court believed. It held that her purchases, while totaling over $675, were for common household goods and products that consumers often purchase with credit cards. It likewise believed her testimony that she had every intention of paying back the cash advance at the time she obtained it. The Court consequently overruled the bank’s objection and discharged the woman’s debt.

Cautionary tale

Although this particular Bankruptcy Court discharged this particular debtor’s debt despite the Bankruptcy Code’s presumption against such discharge, you would do well not to attempt the same strategy. You may not be able to overcome the presumption. Instead, in your own best interests, stop using your credit cards as soon as you make the decision to file bankruptcy.