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Will Chapter 7 discharge my recent credit card debt?

If you are a Connecticut resident whose credit card and other debt has ballooned to the point where it is no longer manageable, you may be thinking about filing bankruptcy under Chapter 7 as a way to discharge these debts. While you are correct that Chapter 7 usually discharges credit card debt, that is not always the case when it comes to credit card charges you make shortly before you file bankruptcy.

A recent Bloomberg report told the story of a woman who took out an $8,000 cash advance on one of her credit cards a mere two months before she filed bankruptcy. Under Section 523(a)(2)(C)(I) of the Bankruptcy Code, there is a presumption against discharging any debt you owe to a single credit card company whose credit you obtained within 90 days preceding your bankruptcy and/or which you used to buy consumer goods totaling over $675.

The court ruling

The case in question arose before the Bankruptcy Court for the Northern District of West Virginia. The issue was whether or not the woman’s $8,000 cash advance debt was dischargeable. Not surprisingly, the bank used the presumption to argue that it was not. The court, however, disagreed, noting that just because the presumption exists does not mean that it cannot be rebutted.

In this case, the debtor successfully rebutted the presumption. She proved through her testimony that the purchases she made with the cash advance not only were reasonable, but also demonstrated typical credit card usage. In addition, the court held not only that the woman did not engage in any trickery or deceit when she obtained the cash advance, but also that at the time she got it, she fully intended to repay her debt.

The take-away

Despite this court’s ruling, you should not overload your credit cards right before you file bankruptcy. Should the credit card company challenge your right to discharge that debt, you have the burden of proof to rebut the Bankruptcy Code’s presumption that any debt you acquire within three months of filing bankruptcy cannot be discharged. This is general information only and is not intended to provide legal advice.

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