Credit Card Fraud & Bankruptcy
A bankruptcy filing provides relief to a debtor by allowing the court to liquidate his non-exempt assets to pay his creditors, discharging any leftover debt, or permitting the debtor to repay as much of his debt as he can over a three- to five-year period. If a creditor accuses a debtor of credit card fraud, however, all or a portion of his credit card debt may not be dischargeable through bankruptcy.
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Definition
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Credit card fraud normally occurs when an individual steals someone's identity to apply for new credit or make purchases on a stolen credit card. In bankruptcy, however, credit card fraud can be defined differently. A creditor can contest a bankruptcy discharge of credit card debt on the basis of fraud if the debtor incurred debt with the intent of filing bankruptcy or made false representations to the credit card company when he applied for the card. An example of this would be a debtor intentionally inflating his income on a credit card application.
Facts
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Regardless of whether a debtor files for bankruptcy relief under Chapter 7 or Chapter 13, she must attend a meeting of creditors. During the meeting of creditors, the debtor must answer questions posed by creditors or the bankruptcy trustee regarding her financial situation to determine whether the individual committed credit card fraud. The individual's creditors, however, are not required to appear at the meeting of creditors before contesting a discharge.
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Time Frame
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The U.S. Bankruptcy Code allows credit card companies to contest the discharge of any debts for luxury goods and services over $500 that were incurred 90 days before filing for bankruptcy. Credit card providers may also contest any cash advance over $750 that the debtor requested within the 70 days before bankruptcy. The goal is to prevent a debtor from incurring large amounts of debt and having that debt discharged in a bankruptcy case when the individual knew ahead of time that she planned to file for bankruptcy.
Features
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A credit card company reviewing a debtor's financial records and credit card purchases looks for indicators of potential fraud. Some indicators of potential credit card fraud are that the debtor was unemployed yet still made purchases; the debtor made purchases after consulting with a bankruptcy attorney; and the debtor used his credit card to purchase items that weren't necessary for his survival. In some cases, a debtor may incur more than $500 in credit card debt within the 90 days before bankruptcy and have the debt discharged if the purchases were for necessities.
Effects
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A credit card company with reason to believe a debt included in an individual's bankruptcy case was incurred fraudulently must file an adversary proceeding with the bankruptcy judge to contest the debt's discharge. If the company fails to do so, the debt may be discharged even if it was clearly fraudulent. Once a credit card company files an adversary proceeding with the court, the judge will review the objection and the evidence before making a decision.
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References
Resources
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