A bank objecting to the discharge of a credit card debt on the basis of fraud will file an adversary case against the debtor. The fraud claim is usually one of two types: (1) fraud in obtaining the credit; or (2) fraud in incurring the credit. 

A bank may claim that the debtor committed fraud in obtaining the credit card.  If the creditor can prove that the card was obtained under false pretenses (i.e. that the application was false), the credit card debt may be declared non-dischargeable because of the fraud. False pretenses may include many things, but is usually lying about financial stability or income. 

The bank may claim that a charge was made when the debtor was unable to repay, and had no intention to repay the debt. Because proving this may be difficult for the creditor, the bankruptcy law presumes that a charge is fraudulent if luxury goods are purchased, or a cash advance is taken, shortly before the bankruptcy case is filed. It is then up to the debtor to prove that the charge is not fraudulent or the charge is not included in the bankruptcy discharge. 

Banks routinely check the bankruptcy debtor’s account for signs of fraud. Some red flag actions include: 

• Filing bankruptcy on a new card;
• Taking a cash advance prior to filing;
• Charges for travel or vacation;
• A debt transfer from one card to another;
• Credit charges while unemployed; and
• Charges made after consulting a bankruptcy attorney. 

The more time between the credit card activity and the bankruptcy filing, the less likely the charge will cause a discharge dispute.  The best advice is: if you are considering bankruptcy, stop using your credit cards.  Consult with your bankruptcy attorney regarding the best way to discharge your credit card debt.

If you want to keep a credit card during your bankruptcy, there are a few things to know.  First, the Bankruptcy Code requires that you list all of your creditors and debts owed on the date of the bankruptcy filing.  Consequently, if a credit card has a zero balance on the date that you file bankruptcy, it does not need to be listed and the credit card company does not receive notice.  

Second, the use of credit during a chapter 13 bankruptcy is prohibited without prior authorization from the trustee and bankruptcy court.  Usually credit approval is contingent upon a written agreement or statement from the credit card company.  Chapter 7 debtors do not have this restriction. 

Third, a payment on a credit card within 90 days before your bankruptcy filing may be considered a preference payment.  The bankruptcy trustee may seek a court order compelling the credit card company to turn over any pre-filing payments.  

Fourth, credit card companies conduct regular checks of their cardholders’ credit and your bankruptcy filing may result in the card issuer closing your account, reducing your credit line, or increasing your interest rate.  These actions may also occur if you choose to reaffirm your debt with the credit card company.  After reaffirming the debt the card may be cancelled and you are stuck with a non-discharged credit card balance. 

Fifth, intentional failure to list a credit card with a balance can result in dismissal of your bankruptcy case.  The bankruptcy court expects you to be entirely truthful concerning who you owe, regardless of your intention to pay the debt. 

Sixth, consider obtaining credit after your bankruptcy discharge.  Many debtors are offered unsecured credit cards shortly after their bankruptcy discharge.  Many creditors consider a recently discharged debtor a good credit risk because the debtor is unable to receive another bankruptcy discharge for several years, and likely has a good debt-to-income ratio.  Many post-discharge credit card offers carry high interest rates and fees, so choose wisely. 

Secured credit cards are another credit option after bankruptcy.  A secured credit card requires a security deposit placed with the credit card company who then issues a credit line secured by the deposit.  Many banks and credit unions offer their customers secured credit cards at reasonable interest rates. 

If you are interested in keeping a credit card during bankruptcy, consult with your bankruptcy attorney.  Your attorney can discuss your options and help you decide on the best way to maintain a credit card account during and after your bankruptcy.

Even when there is a valid defense, a credit card company will sometimes seek to bury the defendant with the enormity of its size. Take for example the recent Palm Beach County, Florida, case of Capital One Bank USA, NA v Pincus. Capital One sued Steven Pincus for a credit card debt of $803.95. Pincus offered to settle the debt for a few hundred dollars, and Capital One refused. Pincus then hired an attorney to defend. Capital One responded with a barrage of court filings that ran up Pincus’s legal expense tab to over $100,000.

Pincus moved for summary judgment and dismissal claiming the lawsuit was barred by the statute of limitations. Pincus asserted that the Capital One cardholder agreement states that Virginia law shall have control, and, since the contract was not signed by either party, whatever agreement existed between Pincus and Capital One must be an oral contract. Pincus further argued that since the statute of limitations for oral contracts in Virginia is three years and since Capital One’s lawsuit was filed three and a half years after the date of the last transaction, Capital One’s case is time barred. Capital One defended by arguing that Florida law and its five year statute of limitations should control because Florida was the state where the contract was made.

The Palm Beach County Court found that Virginia law controlled and the credit card agreement was an oral contract based on Virginia law. The opinion cited several similar Florida cases finding the choice of law provision in a cardholder agreement applies to a statute of limitations defense. In granting Pincus’s summary judgment motion and dismissing the case, the Florida court opinion said the credit card company is “‘master of its complaint’ and cannot disavow the choice of law provision contained in the document it attaches to its Complaint so it can take advantage of the longer statute of limitations.”

The Pincus case did not end there. Pincus and his attorney filed a Fair Debt Collection Practices Act lawsuit in federal court against Capital One’s attorneys to recover his attorney fees (Capital One, as an original creditor, is exempt from the FDCPA, but collection attorneys are not). The case was settled after contentious litigation for $120,000.

The moral of the story is “Don’t be bullied!” If you are sued for a credit card debt, seek legal advice from an experienced debt defense attorney. Many bankruptcy attorneys are experts in debt defense and can explain your legal options.

A credit card company may claim that the debtor committed fraud in obtaining or using the credit card.  If the creditor can prove that the card was obtained under false pretenses (i.e. that the application was false), the credit card debt may be declared non-dischargeable because of the fraud. 

A credit card company may also claim that charges were placed on the credit card when the debtor had no intention to repay the debt.  Additionally, a presumption of fraud arises where luxury goods and services are purchased or cash advances are taken shortly before the filing of a bankruptcy case.  

Credit card companies are entitled to notice of a debtor’s bankruptcy case, and these companies monitor bankruptcy cases for signs of fraud.  Certain actions send up a red flag including:

• Filing bankruptcy on a new card;
• Taking a cash advance prior to filing;
• Charges for travel or vacation;
• A debt transfer from one card to another;
• Credit charges while unemployed; and
• Charges made after consulting a bankruptcy attorney.

 The more time between the credit card activity and the bankruptcy filing, the less likely the charge will cause a discharge dispute.  The best advice is: if you are considering bankruptcy, stop using your credit cards.  Consult with your bankruptcy attorney regarding the best way to discharge your credit card debt.

The subject of bankruptcy is especially difficult for elderly people who may cling to preconceptions that are out-dated or otherwise incorrect. There have been many changes in the laws that protect an elderly person’s ability to meet basic monthly living expenses. Many retirement accounts and social security income are protected from creditor garnishment. Additionally, elder Americans are often judgment proof, meaning all income and assets are protected from creditors. Unfortunately, many older Americans fail to take advantage of these protections because they believe they can honor their obligations by paying minimum payments each month. The sad truth is that it often takes decades to pay off a credit card by making minimum payments. 

The stress and worry over repaying unsecured debt can cause health issues for young and old. A great deal of this stress and worry can be alleviated by choosing a feasible plan to either pay or discharge this unsecured debt. Bankruptcy is one tactic for managing unsecured debt and for reorganizing an elderly person’s finances. An experienced bankruptcy attorney can explain your options and provide solutions for living on a fixed income. Don’t let credit card debt turn “the golden years” to rust.

First, ignoring credit card obligations will cause a persistent series of harassing telephone calls and letters from credit card companies, collection agencies, and finally law firms. Phone calls are systematically made to the debtor’s home and work, and sometimes to third parties including neighbors, extended family, and your employer. The agencies that collect credit card debt are experts at telephone harassment – it is one of their most important weapons. 

Bankruptcy, on the other hand, stops all collection calls. 

Second, your credit score will be ruined on a continuing basis. For each month that a credit card goes unpaid, the creditor will report negatively to the credit reporting bureau. Additionally, collection agencies will often further harm your credit score by “resetting” the date of last activity when the account is transferred to a new collector. 

Bankruptcy stops all negative reporting. Discharged debts should be identified as “Discharged in Bankruptcy” with a zero balance. The debtor’s credit report and score can begin to recover from the date of the bankruptcy discharge. 

Third, you can (and will) be sued. The typical consumer will undoubtedly lose a lawsuit over a legitimate debt. The resulting judgment may include substantial penalties, interest, court fees, and attorney fees. A judgment creditor can collect from your wages, your property, and your bank account. While there are some people who are judgment proof, they are the exception and not the norm. Most people have assets that a judgment creditor can attack. 

Bankruptcy prevents all lawsuits and even stops collection actions from judgment creditors.

Many consumer advocates have likened credit card debt to an illness. Like any illness, the cure is not found in ignoring the problem, which will only make things worse. If you are sick from credit cards and are unable to pay your debts, consult with a bankruptcy attorney and find the cure!

When you have completed your budget, contact your credit card companies directly and see if you can get them to agree on changing the terms of the repayment of the debt.  Unfortunately, most credit card companies will not change the repayment terms unless you fall at least three months behind.  Of course, if you stop making your payments, your credit score will drop significantly.  

If you are unable to negotiate directly with your creditors, then consult with an attorney to consider all of your options including hiring a debt management company or filing bankruptcy. 

A common question we receive in our offices is “what’s the difference between private debt consolidation and filing Chapter 13 and which is better?”  Though the concept is nearly the same, there are many important differences.  If you’re interested in maintaining a good credit rating and you don’t want your debt problems to become public record, then private debt consolidation may meet your needs. Private debt consolidation, however, can’t give you guaranteed court protection from your creditors.  Creditors can still proceed with legal action against you to collect their debts. On the other hand, Chapter 13 offers significantly more protection to you and your family, allowing you to pay your creditors a percentage of the debt owed (often as low as ten percent) and discharges the remaining balance.  And perhaps best of all, creditors cannot repossess or foreclose on your property.

What’s best for you will naturally depend on your specific debts, personal priorities and income status.