Will Chapter 7 discharge recent credit card debt?

When you file Chapter 7 bankruptcy in New Jersey, you expect that the court will discharge virtually all of your consumer debt, including your credit card debt. For the most part this is true. However, you need to be aware that it is not necessarily true when it comes to your recent credit card debt.

Bloomberg News advises that Section 523(a)(2)(C)(I) of the Bankruptcy Code contains a presumption against discharging credit card debt that you assume within 90 days of the date on which you file bankruptcy and that amounts to $675 or more of purchases for consumer goods.

Recent case law

This exact issue arose in a recent case that came before the Bankruptcy Court for the Northern District of West Virginia. Here the debtor took out an $8,000 cash advance on a credit card a mere two months prior to filing bankruptcy. Using Section 523(a)(2)(C)(I) as its arguing point, her card-issuing bank petitioned the court to deny discharge of this debt.

Ultimately the Court denied the bank’s petition and discharged the debt. It stated that while Section 523(a)(2)(C)(I) does indeed contain a presumption against such discharges, this presumption represents one that the debtor can overcome with sufficient evidence. Here the debtor testified not only as to her intent when taking out the cash advance, but also produced receipts showing the various items she purchased with the cash advance money.

The Court ruled that in this case the debtor had no intent to defraud or otherwise disadvantage the bank. In addition, regardless of the fact that her cash advance clearly exceeded the $675 threshold and she did indeed purchase consumer goods with the money, those purchases nevertheless did not represent luxury items, but instead common household purchases for which most consumers use their credit cards.

Caution as the best policy

Even though this Bankruptcy Court discharged this Chapter 7 debtor’s recent credit card debt, you would do well to avoid using any of your credit cards as soon as you begin contemplating bankruptcy.

This is general educational information and not intended to provide legal advice.

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