When Will A Credit Card Company Object To Your Bankruptcy Discharge?

Study Notes:

• A Credit card company may file an objection to the full or partial discharge if there is evidence that the card was obtained by fraud, if there is evidence that the cardholder never designed to reduce the credit card debt that has accumulated, or a debtor made false statements that mislead a creditor to extend credit

• Adversary proceeding: case within a case

• Per-se rule: creditor need not prove debtor's intent (i.e. fraud), and needs to show only that the transactions meet the criteria stated

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• If a creditor prevails: debt becomes non-dischargeable, may attempt to recover the debts under state laws

• If a debtor prevails: debt is discharged and in certain circumstances the creditor must pay for the debtor's attorney fees

• Note: debts that have incurred within 30 days of BK are non-dischargeable

If a person has been discharged from bankruptcy and is ready to start a new life free from debt. A few days later, his lawyer calls him and tells him that one of his creditors has filed an adversary proceeding in his chapter 7 case to object the discharge of his debts. What is going on?

It seems that a creditor has filed an Objection to discharge against the person. This filing begins what is known as an adversary proceeding. An adversary proceeding is a lawsuit within the bankruptcy that seeks to declare a particular debt non-dischargeable.

A creditor (credit card company, loan companies, etc.) may file an objection to an individual's full or partial discharge under Section 523(a)(2) of the Bankruptcy Code if:

• There is evidence that suggests the credit card was obtained by fraud, if there is evidence that suggests the cardholder never intended to reduce the credit card debt that has accumulated, or if a debtor made false statements that mislead a creditor to extend credit,

• The debtor owes $500 to a single creditor for the purchase of "luxury" goods within 90 days prior to filing of the bankruptcy,

• The debtor owes $750 to a single creditor for a cash advance, such as bank transfers, obtained within 70 days prior to filing for bankruptcy. In this situation, the debtor can choose to either settle or fight the case.

The 'per-se' rule applies to first two situations, stated above. The 'per-se' rules states that the creditor does not need to prove the debtor's intents and only needs to show that the transactions meet the criteria stated under Section 523(a)(2) of the Bankruptcy Code. In the case of first situation, evidence would be gathered and supplied to bother sides (debtor and creditor) and a hearing is held in front of a bankruptcy judge.

If a creditor prevails in the case, the debt becomes non-dischargeable and the debtor will owe that debt until it is paid in full; however, a debtor may attempt to recover the debt under state laws. If the debtor wins, the debt is discharged, and under certain circumstances, the creditor is obligated to pay for the debtor's attorney fees.

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