Almost everyone that declares bankruptcy has some credit card debt. Credit card debt may be your primary cause of bankruptcy or a side issue. Regardless, you will be able to discharge all or most of that debt. When you discharge credit card debt it will automatically give you more flexibility to deal with your other debts.
1. Don’t Pay Off Your Credit Card Debt With the Following:
- A home equity loan. Credit card lenders may pressure you into taking out a home equity loan, pointing out that the interest rates are much lower and may be tax-deductible. The credit card debt will probably be discharged and your homestead will probably be exempt. When you take out a home equity loan, you are putting your house on the line for credit card debt that will be eliminated in bankruptcy anyway.
- Part of your retirement IRAs or 401(k)s. In almost all cases your retirement plans are protected in bankruptcy. Also, you may be hit with heavy withdrawal tax penalties if you take out the money prematurely.
- Debt consolidation loans. In most cases, these types of loans only delay the inevitable. They lengthen the term of the loan to pay off the credit cards, usually with hefty interest rates.
2. Be Careful Not to Inadvertently Commit Fraud
Generally, credit cards are easy to discharge except when creditors allege fraud on your part. Fraud is when you knowingly or mistakenly make false representations. Do not give any reason for your creditors to believe that you intended to deceive them. The creditor relies on your honest representation, and if because of your actions the creditor suffers damages your case may be dismissed as invalid. There are several actions that may give creditors grounds to charge you with fraud that I will discuss next. Remember this fact, If fraud can be proven to the bankruptcy judge, he may not let you discharge that credit card debt, or your entire filing may be put into jeopardy.
Here is a list of 6 items that have the potential to give credit card companies grounds to challenge your credit card debt discharge:
- Be careful about making a lot of charges before declaring bankruptcy. It may appear you had no intent to pay those charges and were aiming to use the bankruptcy process to put one over on the credit card companies. The closer to bankruptcy the charges appear, the more it appears that you had an intent to defraud.
- If after talking to your bankruptcy attorney you then begin making unwarranted charges, it may appear that you already decided to initiate bankruptcy.
- If your financial condition is particularly poor when you start making credit card charges, it may appear you have no intent to repay them. If you can point out there was a significant reason to believe your financial condition would change, like getting a new higher-paying job, this may not be a concern.
- Be careful of charging luxury items and cash advances in close proximity to a bankruptcy filing. Purchases of more than $500 to a single creditor within 90 days of bankruptcy or cash advances of more than $750 within 70 days are automatically presumed fraudulent. So it may be necessary to wait at least 90 days before filing your bankruptcy to avoid this problem.
- Avoid creating new credit card balances or transferring old balances to new accounts within 90 days of filing bankruptcy for the same presumed fraud reason as above.
- Be careful of what you put on written financial statements. Creditors can use inaccurate information to claim they relied on your statements to lend you money. If they can prove your statements were purposefully incorrect, they may be able to keep you from discharging their obligation.
Other Actions That May Adversely Affect The Discharge of Your Debt
Writing knowingly insufficient funds checks are considered fraud. Postdated checks are similar in that the creditor can claim he knew the check would be no good and for that reason, it should not be discharged. Writing bad checks not only makes it difficult to open new bank accounts, but also can also earn you a trip to jail.
If you have been receiving government benefits fraudulently, bankruptcy will not discharge this obligation. If you’re still receiving those payments, the government agency may attempt to recoup the excess payments by reducing your benefits and future.
Any conduct that is considered willful and malicious will not be dischargeable in Chapter 7 but may be in Chapter 13. Defining what is “willful and/or malicious” is not easy to pin down, but if the creditor is claiming this conduct you can be headed for trouble. You need to see a lawyer immediately, because if you do not address these allegations the person or agency suing you will win automatically and you’re stuck with that decision. There are separate provisions of the bankruptcy law about debts arising from embezzlement and larceny. These debts are also not dischargeable in bankruptcy.
Criminals’ fines also cannot be wiped out in Chapters 7 or 13. Most courts will not allow you to pay these fines in Chapter 13 while other unsecured creditors are left unsatisfied. The problem arises in that if you don’t pay your fines you may be subject to arrest by the court that imposed them. If you can pay the fines before filing, considering doing so. Talk to your attorney about this sticky situation.
Noncriminal fines and penalties are usually dischargeable in Chapter 13, but not in Chapter 7.
Restitution is where you’re required by court to repay damages you have caused to another person. Restitution is not dischargeable in Chapter 7 or 13. If a victim sues you and obtains a judgment for restitution, you may be able to discharge it in chapter 13 if you did not cause any personal injuries.
Motor vehicle fines can fall into two categories, minor infractions or criminal violations. Minor infractions, such as parking tickets, are not dischargeable in Chapter 7 but are under chapter 13. Criminal violations are not dischargeable under either chapter. Drunk driving and driving under the influence are considered criminal offenses and therefore not dischargeable.
In Conclusion please call our office at (775) 786-7600 or (775) 690-9120 and set up an appointment for a free and confidential consultation with me to discuss your financial situation. We will investigate all of your options and alternatives, even those that don’t require you to file bankruptcy at all. Feel free to visit our website at www.harrislawreno.com to learn more about our bankruptcy practice here in Reno.