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Will Chapter 7 bankruptcy discharge recent credit card debt?

If you are a Floridian whose credit card and other debt has gotten out of hand to the point where you cannot afford to pay your bills, you may have heard that you can discharge your credit card debts by means of filing a Chapter 7 bankruptcy. While this is true in virtually all cases, you should be aware that under Section 523(a)(2)(C)(I) of the Bankruptcy Code, there is a presumption against discharging recent credit card debts. These are the debts you incur from a single creditor 90 or fewer days before filing your bankruptcy petition and with which you purchase over $675 worth of consumer goods.

The Bankruptcy Court for the Northern District of West Virginia recently looked at this issue. The Chapter 7 debtor in that case took out an $8,000 cash advance on one of her credit cards and proceeded to make several purchases with the funds a mere two months before filing bankruptcy. Understandably, the bank whose credit card it was objected to the discharge of this debt, citing the Bankruptcy Code presumption as its major arguing point.

The court’s decision

The court disagreed with the bank’s position. It declared that the Bankruptcy Code’s presumption of nondischargeability for recent credit card debt is a rebuttable one. In other words, the debtor can rebut and overcome the presumption with clear and convincing evidence.

In this case, the debtor did exactly that. She proved through her testimony, receipts and other records that the purchases she made with her cash advance, while cumulatively exceeding $675, typified normal credit card usage for purchasing such things as household goods and products. The court also believed her testimony that she was not thinking about filing bankruptcy at the time she took out the cash advance and had every intention of paying that debt. Consequently, the court also ruled that she did not obtain her cash advance through trickery or deceit.

Bottom line

Despite this court’s favorable ruling on behalf of the Chapter 7 debtor, you should think twice before making credit card purchases once you start thinking about filing bankruptcy. As your attorney undoubtedly will tell you, the fewer complications your bankruptcy has, the smoother it will proceed and the sooner your credit card debt will be discharged.

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