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How Credit Card Companies Can Challenge Debt Discharge

Credit card debt is one of the financial issues that can push a borrower into filing for bankruptcy. However, federal law allows a creditor to challenge discharge of a particular debt by claiming it was obtained by “false pretenses, false representation, or actual fraud.” Credit card companies have two primary strategies for raising such challenges. One is contesting the validity of the consumer’s credit application. The other is asserting the debtor’s improper use of the line of credit.

Credit Application

A credit card application normally includes a statement of the borrower’s annual earnings through employment or other sources and a disclosure of major expenses such as housing. Credit companies have much more detailed information that they either obtain from third parties or can access through the three major credit reporting agencies. That said, the companies use information provided directly by the individual in assessing creditworthiness.

A credit card issuer can object to a bankruptcy discharge of the debt in question by asserting that the information on the credit application was false. The debtor may have overstated income and/or understated expenses. A creditor can also challenge a discharge based on a fraudulent statement of a source of income. If the creditor asserts that it relied upon false or misleading statements from the debtor, the court may deny the discharge of the debt.

Improper Usage

Credit card issuers can also object to discharge of debts based on alleged fraud or abuse of the bankruptcy system. The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) presumes that consumer debts of more than $675 owed to a single creditor for luxury goods or services are not dischargeable if incurred within 90 days of filing bankruptcy. The same presumption applies to cash advances aggregating more than $950 under an open-ended credit plan obtained within 70 days of filing for bankruptcy. Although it is not always clear what constitutes “luxury goods and services” under this provision, improper usage is very common as this type of fraud is relatively easy to prove.

Challenges to credit card debt can be raised in an adversary proceeding, which is a trial within the bankruptcy proceeding. After both sides present evidence, the case is decided by the bankruptcy judge, without a jury. A debtor facing an adversary proceeding needs experienced bankruptcy counsel to have any chance of prevailing. An attorney may also be able to negotiate an alternative resolution.

With six offices in the Atlanta, Marietta and Athens areas, Jeff Field & Associates handles a multitude of bankruptcy and debt relief matters in Georgia. Our attorneys provide each client the necessary guidance through complex and stressful processes of eliminating or reorganizing debt. If you are having debt problems, contact us online or call 404-381-1278 for an initial consultation.

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