Filing for bankruptcy gives you short-term relief from debt collection efforts and long-term help if you qualify for a discharge. Only certain debts are eligible for discharge in bankruptcy, including unsecured debts.
Given that credit card debts are typically unsecured or only secured by a minor cash deposit, their balances are often included in bankruptcy filings. It is true that many American households struggle to manage credit card debts, especially after the holidays or during a difficult financial time.
If you’ve been living on credit cards, discharging that ever-growing balance may be the only way to regain control over your finances. Are there any situations in which a credit card debt is not eligible for discharge during a bankruptcy filing?
If a creditor alleges fraud, that could prevent a discharge
When you open the line of credit and make individual payments using a credit card, you affirm your intention to repay those charges. Your intention to repay the amount used is key to the terms of the agreement.
If you use a credit card for personal expenses right before you file bankruptcy, the creditor could allege that you knew you had no intention of paying back the money used for those particular transactions.
Especially when it comes to covering the cost of filing your bankruptcy, completing credit counseling courses or retaining a lawyer, using a card you intend to discharge could mean you can’t discharge that portion of the balance or that account in some cases.
The rules limit credit card use before filing for bankruptcy
Federal bankruptcy rules have changed to take potential abuses and bankruptcy fraud into consideration. If you have any cash advances from your credit card or other banking sources within 70 days of filing bankruptcy, those amounts will likely be nondischargeable.
The same is true for any large purchases of luxury items or services. If you spend $725 or more on a credit card for non-essentials within 90 days of filing, those purchases may also be nondischargeable.
Failing to include an account in your filing paperwork might also prevent the discharge of a debt. Creditors can also sometimes file adversarial proceedings with the court requesting that their debt get excluded from the bankruptcy proceedings or automatic stay. Getting help as you plan for and file bankruptcy can decrease the likelihood of mistakes that leave you still saddled with credit card debt.