Back in October, we discussed the ten situations in which parties can file adversary proceedings. One situation that occurs frequently is the sixth one: determining the dischargeability of a debt. In New York bankruptcy, the type of debt creditors sometimes try to shield from discharge is credit card debt. Because most chapter 7 bankruptcies involve large amounts of credit card debt, lenders that successfully contest a debt’s discharge can somewhat hamper a debtor’s bankruptcy.
The law creditors rely on to do this is 11 U.S.C. § 523(a)(2), which bars the discharge of consumer debts for four reasons:
(1) False pretenses
(2) False representation
(3) Actual fraud
(4) Use of a materially false financial statement
The first three situations somewhat run together and are packed into one line of the statute. They all mean that the debtor deliberately made a factually incorrect statement to the lender to obtain credit, and the lender would not have lent the debtor the money if it had known the statement was false. Examples would include willfully submitting another person’s Social Security number to a lender or lying about one’s income to obtain credit. In these three situations, the Bankruptcy Code grants creditors more protections in two specific circumstances:
- If the consumer debts are owed to one creditor, exceed $650, were spent on luxury goods or services, and were incurred 90 days before the bankruptcy filing, then they are presumed nondischargeable.
- Cash advances taken from the credit line exceeding $925 within 70 days of the bankruptcy filing are also presumed to be nondischargeable.
Debtors who find themselves in these circumstances may dispute the facts of these situations during the adversary proceeding.
As for the materially false financial document situation, the situation is largely the same, but the Bankruptcy Code makes it explicit that the document is materially false, concerns a debtor’s (or insider’s) financial condition, was published with intent to deceive the creditor, and the creditor reasonably relied on it.
Adversary proceedings to determine the dischargeability of credit card debt don’t necessarily shut down a debtor’s bankruptcy, and in many cases the creditor misses the deadline for objecting. However, to avoid objections to your debts’ dischargeability, the best course of action is probably to just wait longer to file bankruptcy, but an experienced New York bankruptcy lawyer can help you determine the likelihood that your debt will be challenged and fight it in court if necessary.
For answers to more questions about credit card debt, adversary proceedings, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced fair debt collection practices act Bruce Weiner for a free initial consultation.
