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.

Debts described in sections 523(a)(2), (4) and(6) (debts incurred by fraud or malicious conduct) are not automatically excepted from discharge. A creditor or debtor must file an adversary case requesting the bankruptcy court to determine the discharge status of these types of debts.  The adversary case is generally filed within 60 days after the first 341 Meeting of Creditors.  Failure to file a timely adversary case waives the right to challenge the dischargeability of the debt. 

In some rare cases a creditor or the bankruptcy trustee may ask the bankruptcy court to deny the debtor a discharge.  Hiding assets, lying during the bankruptcy process, failing to obey a court order, and destroying documents with the intent to defraud creditors are all actions that could result in the bankruptcy court denying the debtor a discharge.  In bankruptcy, honesty is not only the best policy, it is the only policy that will get you a discharge. 

If an adversary case is filed against you, do not panic.  You and your bankruptcy attorney must be served notice of the adversary case and you will have time to answer the complaint.  In most cases an experienced bankruptcy attorney will anticipate the adversary case and will discuss options with the client.  However, some cases come “out of the blue.”  In those cases there is still time to develop a strategy including negotiating a settlement with the creditor.

JPMorgan Chase, Ally Bank’s GMAC Mortgage and PNC Financial have all suspended foreclosures in states that require a judge’s order.  Bank of America has suspended all foreclosures in all 50 states.  State attorney generals across the nation have joined an investigation into these foreclosure practices.  In Congress, Nancy Pelosi and Christopher Dodd, have called for a federal investigation, and U.S. Attorney General Eric Holder said he is looking into the matter.  

Potentially millions of foreclosures across the United States are subject to challenge.  In some cases courts are denying the lender’s foreclosure suit because it cannot produce clear title.  A recent lawsuit in federal court in Louisville alleges that banks participating in MERS (a mortgage document clearing house) conspired to produce false promissory notes, affidavits, and mortgage assignments to be used in mortgage foreclosures.  Similar class actions have been filed against MERS in Florida and New York. 

As a result of this mortgage document fiasco, one title insurance company, Old Republic National Title Insurance, has announced that it will no longer write new insurance policies for homes that have been foreclosed on by JPMorgan Chase and GMAC Mortgage.  Homeowners who have purchased foreclosed homes may not have clear title and may face difficulty in selling their homes in the future. 

If you are facing foreclosure, consult with an experienced bankruptcy attorney and discuss your options.  There are many options for homeowners who are unable to make their mortgage payments.  Your bankruptcy attorney can discuss your options and protect your legal rights.

For instance, if you file a Chapter 7 bankruptcy on April 1, and your great aunt dies on September 28 (within 180 days of the bankruptcy filing date), any money you receive from your great aunt’s estate must be turned over to the bankruptcy trustee.  It does not matter when you receive the money or when your case was discharged.  You might receive the inheritance years later, and it must be turned over to the bankruptcy trustee for payment to creditors.  You may be charged with bankruptcy fraud (a federal crime) if you fail to inform the trustee of your inheritance or turn over the money. 

If the trustee receives inherited money, your case will be reopened and a bankruptcy estate is formed.  Notices to creditors are sent and the trustee will distribute the funds to creditors.  In some cases you will be able to keep some of the money, and in other cases some of the funds may be returned.  

Inherited property is treated the same as cash.  If you receive a car or a family heirloom, the property must be turned over to the trustee.  In some cases you may be able to exempt inherited property or the trustee may consider the value of the inheritance too small or burdensome to liquidate and distribute. 

If you are considering bankruptcy and are aware of a significant chance of someone leaving you inheritance money, speak with your attorney.  There are options to avoid turnover including rewriting the will to cut you out, or setting up a spendthrift trust.  A spendthrift trust cannot be reached by creditors.  Consult with an attorney to properly create a spendthrift trust or rewrite a will.  There is nothing illegal or immoral about estate planning and your loved one may prefer leaving money to you rather than your creditors.

Bankruptcy fraud can become very complex and may involve the IRS or FBI. The penalty may involve many years of incarceration when coupled with other criminal charges. Other cases are relatively simple like a recent case in Pennsylvania:

A husband and wife were each sentenced to fifteen days in prison by U.S. Magistrate Judge J. Andrew Smyser in the Middle District of Pennsylvania after finding contempt of court for untruthful conduct in their joint bankruptcy case.

According to a press release issued by the U.S. Attorney’s Office, Tammy Beecher and Wyatt Beecher filed a chapter 7 bankruptcy petition in May 2007. The filing stated that the Tammy Beecher had no income and that neither debtor operated a business within the previous six years. In fact, the Beechers owned a family business, “Fun 4 Kids Entertainment.” Only after the Beecher’s were presented with a coupon for $5 off any party, and reminded by the chapter 7 trustee that they signed the bankruptcy petition under penalty of perjury, did the Beecher’s admit that they owned and operated the business.

Bankruptcy fraud can be reported by ex-spouses, banks, and even your neighbors. The Executive Office of the United States Trustees (EOUST) recently launched an internet site that will allow the public to report suspected instances of bankruptcy fraud to the EOUST at http://www.usdoj.gov/ust/eo/fraud/index.htm.

The moral here is: tell your bankruptcv attorney everything. Your attorney can work with you to protect your assets and avoid criminal charges, but only if you tell all. The information you share with your attorney is shielded by attorney-client privilege, a powerful and time-honored protection. While your attorney cannot counsel or assist you in an illegal act, there are many legal options available in every case. If you are in over your head, speak with an attorney and understand your legal options.

A NSF “payable on demand” check is not dischargeable in bankruptcy and bankruptcy will not exonerate you of a criminal act.  The bankruptcy automatic stay does not apply to stop criminal prosecutions.  Likewise, any debt to the victim of the bad check is now considered criminal restitution, also not dischargeable in bankruptcy.  Any restitution, costs, and fines are not discharged by the bankruptcy. 

While criminal prosecution of a bad check case is not affected by your bankruptcy, private collection is stopped by your bankruptcy.  Any civil legal action concerning a bad check must stop, and any civil garnishment or other collection action must cease. 

The second type of bad check is the post-dated check.  These checks include payday loans and other checks that are essentially promises to pay in the future.  You and the receiver are aware that the check is not presently negotiable.  The bank will not pay the check because you don’t presently have the money in your account.  

With a few narrow exceptions, being unable to pay a post-dated check is not a criminal act.  However, it may be a crime to write a post-dated check that you intend to include in your bankruptcy.  Typically the recipient of the post-dated check would have to file an adversary case with the bankruptcy court and prove that you committed fraud in writing the check with no intention to ever pay it. 

If you have outstanding bad checks and are considering bankruptcy, discuss your situation with an experienced bankruptcy attorney.  Your attorney can advise you on the best way to deal with a bad check during your bankruptcy.

In deciding whether to discharge a bank account debt, you must determine if repayment is feasible.  In cases where the debt is small, the account is still open, and you have the resources to pay the debt, repaying the debt is generally the best option.  Remember to consult with your attorney before repaying any debt prior to filing bankruptcy.  In many cases it is advantageous to wait until after the case is filed before repaying a debt. 

If paying the bank account debt is not feasible, you may face several negative consequences.  First, the bank will close your bank account.  Second, over eighty percent of all banks use Chexsystems, a consumer reporting agency that provides information regarding accounts at banking institutions.  Negative information may remain on your Chexsystems file for five years.  To view your Chexsystems report for free, visit: https://www.consumerdebit.com/consumerinfo/us/en/chexsystems/report/index.htm 

While a bankruptcy will discharge a bank account debt, factual information concerning the debt will remain on your Chexsystems report after the bankruptcy.  This information is available to financial institutions and may prevent you from opening another bank account.  

Fortunately, there are programs available to an individual with a derogatory Chexsystems report offered by banks, universities, and not for profit groups.  One of the most popular is the “Get Checking” program offered by several groups around the country.  The University of Missouri Extension offers a typical “Get Checking” program, which requires a debtor to pay all outstanding bank fees on the prior bank account and take a six-hour checking education class.  The debtor then receives a certificate of completion which can be used to open a new account at a participating financial institution.  If ChexSystems reports suspicion of fraud on a prior account, a certificate will not be issued and institutions are not required to open an account. 

If you have an overdrawn bank account and are considering bankruptcy, discuss your financial situation with an experienced bankruptcy attorney.  There are many options to deal with bank account debt, but the situation can only grow worse from procrastination.  Quick action is the best cure for this type of debt.

In an article posted to the BBB website, Stephen A. Cox, President and CEO of the Council of Better Business Bureaus said, “The debt settlement industry is flourishing and many families are being lured into believing that debt settlement is an easy fix and that their credit card debt will just disappear.”  Mr. Cox went on to say that “the truth is that the process doesn’t work for many consumers, it has potentially serious negative consequences, and should primarily be used as a last ditch effort[.]” 

Debt settlement companies typically offer to negotiate a settlement for a fee.  Unscrupulous companies mislead consumers with promises of large savings and quick resolution.  The truth is that it is difficult for a non-attorney to obtain a debt reduction of 50% or more.  Additionally, these types of settlements are only available with a one-time payment.  Most debt settlement companies require an up-front fee and ask the consumer to make payments into a savings account held by the debt settlement company for future settlement.  During the process of six months to a year that it takes to build up the account, the consumer is at risk of garnishments and lawsuits. 

In some cases fraudulent debt settlement companies have stolen from the consumer accounts, or refused to return funds.  In other cases the consumer is driven deeper into debt when the debt settlement company is unable to settle the debt. 

Unlike debt settlement, the bankruptcy process is a legal process supervised by a federal judge and the U.S. Department of Justice.  Your agent is a licensed attorney throughout the process.  There are no hidden fees and you pay only what you are able to afford.  At the end of the bankruptcy process your debts are discharged and you receive a financial fresh start ordered by the bankruptcy court. 

If you are struggling with debt and need financial relief, speak with an experienced attorney and discover how the federal bankruptcy laws can help you and your family.  Don’t be a victim of a debt relief scam.

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.

While there are advantages to using these services, there are some problems with them such as:

1)      If you receive a Notification from a monitoring company, your information may have already been used illegally by someone who has opened up a new credit account with your stolen identity. 

2)      The monitoring services cannot catch certain forms of identity theft that don’t access your credit report such as a person using a stolen identity to a) obtain a Payday advance loan, b) apply for a job; or c) apply for a driver’s license. 

3)      Most of what these services offer, you can do yourself.   You can file fraud reports and place fraud alerts and credit freezes on your credit files with credit reporting companies.

Many people believe that credit monitoring activities will make them completely secure against identity theft. That simply isn’t true. However, credit monitoring can be an important piece of your protection package. Some other things you can do include:

• Leave important documents in a safe place at home.
• Only carry the credit cards or other cards you plan on using that day (do not carry your Social Security Card).
• Properly destroy old credit cards, checks and unneeded receipts
• Shop only on secure Web site with companies you trust. 
• Check your bank and credit card statements monthly for any suspicious activity.
• Personally check your credit report at least once a year. 

Since the cost of a monitoring service usually runs $10 to $15 a month, it may be worth it for the peace of mind in knowing that you are purchasing a little added insurance to avoid being the next victim of identity theft.