|
Please choose from below
Evaluating Credit Card Discharge Issues
It is always possible for the credit card people to challenge the discharge of their debt in a Chapter 7 bankruptcy (usually under normally §523 of the Bankruptcy Code). Therefore, it is imperative to determine precisely when you used your credit cards last and the amounts that where either charged or accessed. The creditor has to bring an adversary proceeding, which is sometimes called a "non-dischargeability action". If the credit card people succeed at trial, the debt will be deemed non-dischargeable by the bankruptcy; and therefore, the debt will survive the bankruptcy.
At the present time, this is only possible in Chapter 7. But, the credit card industry is requesting that Congress make this applicable to Chapter 13 as well if the new law is passed and goes into effect.
There are three positions the credit card companies can take to pursue such an adversary proceeding:
• the application submitted to obtain the credit card was not completely truthful
• the credit card was used with the intent to not ever pay back the debt
• the card was used beyond a threshold amount within 60 days prior to filing a Chapter 7
Although these problems are not exactly applicable to Chapter 13, the creditors of the Chapter 13 can alleged "bad faith" which is problematic in getting the case confirmed by the court, but, is much less intrusive to the filing.
Credit Card Hot Buttons
The best we can tell from all the litigation published in the industry is that the credit card companies have software that automatically reviews any particular account where a Chapter 7 bankruptcy has been filed. If the account meets certain criteria, the list is generated and the file is forwarded to their attorneys for review. If the attorneys feel that further investigation is warranted, they will either right the counsel for the Chapter 7 bankruptcy directly asking for further information or bring an adversary proceeding against the Chapter 7 debtor immediately. Every credit card company has a different practice; however, the trend has been to review recent use very closely. The following facts and circumstances will likely trigger a challenge by the creditor:
• Increased use immediately before filing
• Substantial use of a recently issued credit card
• Use of credit card for luxury items
• Cash advances up to 13 months prior to filing
• Exceeding the credit card limit using the credit card without the intent or reasonable belief that it can be repaid
• Use of credit card for a large percentage of living expenses
If cash advances exceed the present threshold amount (which changes every year) there is a presumption of fraud ; and therefore, a presumption that the debt is not dischargeable. It then is up to the debtor to prove that they intended to pay the debt back but was unable to due to circumstances beyond their control.
Options Available
If the possibility of an adversary proceeding is present, there are several strategies that your attorney may employ:
• review all credit card accounts, particularly the use and timing, and wait a certain time before filing the petition.
• File a Chapter 13 Bankruptcy.
• File a Chapter 13 Bankruptcy and convert the petition to a Chapter 7 Bankruptcy after a certain time period.
• File a Chapter 7 Bankruptcy petition and convert the case to a Chapter 13 Bankruptcy petition
• File a Chapter 7 Bankruptcy petition and settle the adversary proceeding with the objecting credit company.
• File a Chapter 7 Bankruptcy petition and take the case to trial; if you win, and you have submitted as part of your answer or cross claim that the plaintiff's case is frivolous and asks for attorney's fees, attorney's fees may be awarded to you.
Bankruptcy Fraud
Anytime a creditor believe that a debtor has committed fraud, they can bring an adversary proceeding objecting to the dischargeability of the debt in a Chapter 7 Bankruptcy proceeding. Therefore, the creditor will allege that the credit card was obtain by using false information, that the use of the credit card was without the reasonable belief that they debt could be repaid or that the recent use exceeds the threshold limit.
Simply alleging that the debt was incurred by fraud is insufficient. The creditor must establish facts and circumstance that they can prove at trial that meets each part of the law as it is presently written.
A common circumstance and defense is the creditor running a credit report on the debtor immediately before extending credit.
Possible Fraud Factors
When reviewing the account, credit card company's take into consideration the facts and circumstances of each different case. Through a prior case law and the code have a checklist of factors that suggest fraud. Some courts use the "totality of the circumstances".
Some of the factors the court may considers are as follows: 1) length of time between charges and the filing of the Chapter 7 Bankruptcy petition; 2) the amount of the purchases or case advances made on any one particular account; 3) the number of purchases or cash advances on any one particular account; 4) the financial condition of the debtor at the time the application was made; 5) the financial condition of the debtor at the time the charges were made; 6) whether the debtor had multiple charges on the same or different account in close proximity of one another; 7) the income of the debtor at the time of the application and at the time of the charges or cash advances; 8) Whether or not the debtor had consulted an attorney about filing bankruptcy before the charges were made; 9) whether there was a sudden change in the buying habits prior to filing the Chapter 7 bankruptcy and 10) whether the purchases or cash advances were made for the purpose of purchasing luxuries or necessities. (See in re Dougherty 84 BR 657).
Although bankruptcy is a federal law, different jurisdictions view the law differently in this regard. Therefore, the jurisdiction where you file may very well determine the outcome of the case. Therefore, it is extremely important to pursue and receive expert bankruptcy advice.
Credit Scams
Scam 1: Predatory Lenders
Predatory lenders often advertise that mortgaging your home is a good way to pay off your debt. Normally predatory lenders such as the Money Store and Country Wide will lend you more than what your house is worth. You sit down and sign the mortgage papers, which gives away your cash and your home (known as equity) and if you do not pay, they can take your home. Additionally, you pay a premium and higher interest rates. If you have bad credit, it is never a time to refinance your mortgage because you will only pay more and put your assets at greater risk. Additionally, predatory lenders will overcharge you for their fees when you sit down to sign the papers.
Scam 2:"Protect your credit by settling your debts!"
You will see television commercial after television commercial and pop-up ad after pop-up ad on the internet for settling your debts for less than what you owe. Even if this were possible, for every action there is an equal and opposite reaction. Pay less than what you owe through debt-settlement and your credit rating is reduced.
Additionally, for any amount that is settled you will receive a 1099 and pay local, state and federal income tax thereon. The absolute bottom line is, that debt settlement companies are a scam. The reason that they are so successful is that people are so desperate that they want them to be true and they have a preconceived notion of bankruptcy.
These debt settlement companies often require you to sign a power of attorney so that they have control over your financial decisions and take money right out of your bank account. Does it make any sense at all to let a total stranger take money out of your bank account? Absolutely not. The downside of this is that it will take you more years to repay their 50% plan when you could have repaid it with 5% to unsecured creditors over five years from most chapter 13 repayment plans. Also, they don't have federal judge to order in the company to accept the plan without question.
Credit counseling:
- Will charge you a high fee.
- Normally take it out of your bank account whether you want them to or not
- Receive "kick backs" from your creditors.
- Companies can elect not to participate and can sue you. Once they receive judgment, they can freeze your bank account, garnish your wages and take a lien against your property.
- Some banks only accept payments if you go through their credit counselors so they can earn a fee.
- 99% of people don't finish these credit counseling plans.
These debt settlement companies (professed to be not for profit) have nothing to stop them from paying their executive an exuberant salary. Furthermore, they too often never pay their credit card companies and file bankruptcy themselves (i.e. AmeriCredit). (Actually, the roots of credit counseling come from the banking industry. The original credit counseling firms were set up by the banks as a collection tool. It was just one more way to attempt to collect money from debtors who could not afford to pay them at the time.)
Scam 3:"Erase Bad Credit"
Another common scam is that you can "erase bad credit." There is absolutely no such thing. It cannot be done. You can erase and correct information on your credit report, but you do not need to spend $3,000 to do it; you can do it on your own!
Scam 4:
Be very careful with firms that advertise that they can settle your taxes for much less than what you owe. These are normally known as offers and compromise and are only successful on certain cases with certain facts. Furthermore, it is imperative not to hire out of the area practitioners. There is no way to determine their credentials, talk to them in person or recuperate the amount of money that you have paid, should they not be able to produce the results as promised or act appropriately. Most of the time, people that are attempting to file offers and compromise don't qualify. Additionally, it is possible to file and compromise on your own with the assistance of the IRS. There is no reason to spend $10,000 for this service in most cases.
Seven Debts that Cannot be Filed:
- Child support and alimony.
- Generally, taxes less than three years old.
- Federally guaranteed student loans.
- Debts due to theft or fraud.
- Criminal acts: criminal restitution, intentional injuries
- Marital property settlements.
- Debts pursuant to divorce decree.
|
