Credit card issuers sometimes challenge the discharge of their debt when people file for bankruptcy by filing an adversary proceeding, claiming that the debt was incurred by fraud and therefore should be excluded from the discharge. This is sometimes called a "non-dischargeability action".
Credit card debt may be legally non dischargeable in bankruptcy under two circumstances:
* The application submitted to obtain the card was fraudulent.
* The card was used with no intention of ever repaying.
This issue used to arise only in Chapter 7 prior to the 2005 bankruptcy code amendments. Now, creditors can contest the discharge of debts in bankruptcy.
Hot buttons for card issuers
Every card issuer has different rules about when they will challenge the discharge of credit card debt from bankruptcy. However, there are some flags that most credit card companies look for when considering disputing bankruptcies:
* Increase in credit card use right before filing for bankruptcy
* Getting a new card shortly before filing
* Large cash advances before filing
* Using your card to take vacations shortly before filing
* Borrowing on one card to pay off another
* Exceeding credit limits
* Using a credit card when unemployed
* Carrying a large balance at the time of filing for bankruptcy
* Charges made after consulting a bankruptcy lawyer
In general, the longer amount of time that passes from credit card charges, and filing for bankruptcy the less likely a credit card company will dispute your bankruptcy. The credit card company may also choose to dispute some of the charges made on your card, but not your entire credit balance.
What options are available
If you are concerned that your credit card may try to dispute charges you made if you file for bankruptcy, there are some things you can do:
* Wait to file bankruptcy so that more time will have elapsed between the "questionable usage" and your filing
* Settle with the credit card company if they dispute any charges, instead of taking the case to court
* Contest the suit at trial: if you think you can win, you can recover your attorney's fees at trial.
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