Unmanageable credit card debt is one of the leading reasons people file for bankruptcy. Generally, a Chapter 7 bankruptcy erases credit card debt entirely. In a Chapter 13, you pay back a portion of your credit card debt but far from all of it. Shedding credit card debt in bankruptcy is a major weight off your shoulders. However, you need to avoid running up big credit card bills in the weeks and months leading up to filing bankruptcy, because you could get stuck with that debt even after filing.

If the credit card company proves that you knew you were going to file for Chapter 7 or 13 bankruptcy but first you went on a spending spree using your cards, the court could decide that this newer debt should not be erased. You’ll have to pay it back instead. That’s because it is considered fraud to use your credit card to make purchases with the intent of keeping those items and never paying for them because of bankruptcy.

Sometimes a credit card company can prevent your debt from being discharged without having to provide proof of fraud. A 2005 law called the Bankruptcy Abuse Prevention and Consumer Protection Act or (BAPCPA) allows creditors to allege “presumptive fraud” in certain cases. Presumptive fraud occurs when a debtor does one or both of the following:

• Purchases $800 or more in luxury goods on a credit card within 90 days of filing bankruptcy
• Takes a cash advance of $1,100 or more on a credit card within 70 days of filing bankruptcy

When presumptive fraud exists, the debt will not be discharged in bankruptcy. Importantly, presumptive fraud applies only to cash advances and purchases of luxury/unnecessary items. You can use your credit card, even in the run-up to bankruptcy, to pay for things like clothing, food and other necessary items, and such debt will still be eligible for discharge.

The credit card company will review your transaction history when you file for bankruptcy. If it finds charges that it believes could be fraudulent, the company can file a complaint to begin an adversary proceeding. Essentially, this is a lawsuit wherein the company asks the bankruptcy court to declare a portion of your debt nondischargeable. If you fail to respond to the complaint, the court will enter a judgment in favor of the credit card company. Litigating the case usually means higher expenses, so many people facing an adversary proceeding try to resolve the issue by negotiating with the credit card company, with the help of an attorney.

At the Law Offices of James C. Zimmermann, you can talk to an experienced New Jersey bankruptcy lawyer and start to develop a plan to get the debt relief you need. Call 973-764-1633 or contact us online to arrange a consultation at our offices in Vernon, Wayne, Pompton Lakes, Hackensack and Nutley. We can also meet with you via video conference.