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Will Chapter 7 discharge my recent credit card debt?

If you are a Californian whose credit card debt has gotten out of control, you may have heard that Chapter 7 bankruptcy discharges your credit card and other consumer debt. This is generally true, but you should be aware that this may not include credit card debt you take on shortly before filing bankruptcy.

As Bloomberg News reported, Section 523(a)(2)(C)(I) of the Bankruptcy Code contains a presumption against discharge of debt you incur within 90 days of filing bankruptcy if that debt represents one creditor and your purchases represent consumer goods worth over $675.

The Northern District of West Virginia Bankruptcy Court recently addressed this presumption in a case where the Chapter 7 debtor used one of her credit cards to obtain an $8,000 cash advance approximately 60 days before filing bankruptcy. The bank that issued her credit card filed objections with the court, alleging that the presumption precluded discharge of her debt since she used the cash advance proceeds to purchase consumer goods clearly totaling more than $675.

Rebuttable presumption

The court overruled the bank’s objections, declaring that the Bankruptcy Code presumption against recent debt discharges is a rebuttable one. What this means is that the presumption applies only to the extent that a debtor cannot present clear and convincing evidence to rebut it. In the instant case, the debtor in fact presented sufficient evidence to rebut the presumption.

The debtor proved through her testimony, receipts, etc., all of which the court found credible, that her cash advance purchases, while totaling over $675, represented household goods and products that consumers routinely buy on credit. In addition, the court believed her testimony that she fully intended to repay the cash advance at the time she obtained it, even though she subsequently filed for Chapter 7 bankruptcy. Finding that she committed no fraud, trickery or deceit, the court discharged this debt, along with her other credit card debts.

Precautionary tale

Despite the fact that this particular Chapter 7 debtor successfully rebutted the Bankruptcy Code presumption against the discharge of recent credit card debt, you should think carefully before acquiring any new credit card debt once you start thinking about bankruptcy. Should you acquire the debt within three months of filing, your court may not arrive at a similar decision when your bank objects to its discharge.

This is educational information only and not intended to provide legal advice.

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