A common question being asked by a growing number of American consumers seriously contemplating bankruptcy, or merely investigating it from the standpoint of being informed as a potential option for addressing their debt problem, hinges on issues of their legal eligibility for bankruptcy. And, even as importantly, on whether they face the likelihood of having their bankruptcy, if they were to file, disapproved, or even having themselves charged for "bankruptcy fraud."
One debtor and his wife who said they were "considering" bankruptcy, recently posed a similar question in a web blog forum, indicating that they had credit card debts of some $52,000, the bulk of which ($30,000) had been charged just over a year earlier - in March through May of 2008.
IS A RECENT LOAN OR CREDIT CARD CHARGE OFF FRAUD UNDER THE BANKRUPTCY LAW?
The main question for this article, will be limited to this: when and under what circumstances will your recent debts, such as credit card charge offs or similar purchases, made before filing for bankruptcy, be deemed fraudulent debt under the bankruptcy law, and/or a non-dischargeable debt in bankruptcy? This is a question which has become more relevant in the bankruptcy process since the enactment of the rather now-notorious BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act) law of 2005 whose central purpose, as its name suggests, had been to weed out bankruptcy fraud and those who file bankruptcy fraudulently.
The central question is, are you eligible for bankruptcy? Especially, are you eligible for Chapter 7 bankruptcy? And, secondly, would your debts be disapproved for fraud if you were to file for bankruptcy?
Merely as a general proposition, here are the general rules in cases of this nature, and what typically happens with them from the standpoint of the bankruptcy law.
Under the current bankruptcy law which was enacted in 2005, debts considered to have been incurred by a debtor by acts of fraud, false pretenses or misrepresentation, and debts or loans obtained by use of written statements that are materially false and deceitful regarding the debtor's financial condition, are NOT DISCHARGEABLE in bankruptcy. That is, such particular debts will NOT be cancelled or forgiven in bankruptcy. And those ones involving more deliberate or egregious acts of fraud, may be liable to prosecution and various legal sanctions.
And debts which fall within categories such as the following, may generally be presumed to be fraudulent and therefore non-dischargeable, unless proven otherwise: debts over $500 that the debtor incurs for loans or credit card purchases or luxury items within 90 days of filing for bankruptcy; cash advances of $750 or more taken within 70 days of filing for bankruptcy; and any debts of any kind or amount which a debtor incurs when the debtor knew or should have known that he (or she) couldn't pay. (The most common forms of this are: a credit card purchase made by a debtor under circumstances which the debtor knows, or reasonably ought to have known, that he won't be able to pay; 'adding up' on credit card purchases at the last minute either just before filing for bankruptcy or after the card issuer has ordered return of the card, unreasonable or outrageous charge offs for obvious luxuries.)
TIMES WHEN EVEN A NON-DISCHARGEABLE FRAUDULENT DEBT MAY BE DISCHAREGEABLE
BUT THIS IS IMPORTANT: There are, however, certain circumstances under the law when this kind of debts which ordinarily are Non-Dischargeable, may become DISCHAREABLE.
Under Section 523(c) of the Bankruptcy Code, credit card debts (among others), which would ordinarily be non-dischargeable, would, nevertheless, be deemed dischargeable, and not non-dischargeable any more, if and where certain given conditions obtain. Namely, if this were to happen: if the creditor who's owed the debt does NOT expressively mount a challenge in the bankruptcy court against their being discharged, as well as succeed in convincing the judge to hold that those debts are actually non-dischargeable. To put it another way, if a debtor has any non-dischargeable debts that fall within the above-stated kinds of debts, UNLESS the creditor himself (usually the lawyer he might have hired and handsomely paid to do this for him) had actually initiated a court action during the bankruptcy proceedings expressly demanding denial of a discharge for those debts for reasons of fraud or dishonesty, and UNLESS the bankruptcy court upholds such a complaint and makes an order declaring those debts to be actually non-dischargeable, then those debts would be deemed dischargeable and would be discharged, nevertheless.
If the creditor to whom the debt is owed does not act at all, or fails to act on time (i.e., within 60 days of the first date set for the creditor's meeting during bankruptcy), then the debt still remains discharged, providing the debtor had fully listed those debts as his debts on the bankruptcy petition papers. On the other hand, if the creditor should act timely, and if he should successfully raise an objection and make a good case to the court, the debtor would then not be discharged from such debts in such circumstance upon a ruling entered by the court to that effect.
WHAT INFORMED DEBTORS (OR KNOWLEDGEABLE DEBTORS' ATTORNEYS) MAY DO IN SUCH CIRCUMSTANCES
In deed, rather fortunately for the debtor, in most bankruptcy cases involving such issues, the history is that most creditors often never bother to raise any objections whatsoever in the cases, in the first place!
Here is the point of vital importance here for debtors to recognize: as a practical matter, what generally happens in practice, is that most creditors who are owed such types of debts, would usually and generally not challenge or object to the discharge of such debts and thereby would let it readily pass. Creditors, quite conscious of the fact that mounting such a court challenge against the discharge of such a debt would usually require a lawyer, and, with it, the lawyer's usual hefty costs, would deem it a better business bargain, comparatively speaking, to let the debt go, than to "throw good money after bad" by paying a lawyer what would probably be a higher amount to challenge the debt's dischargeability. Meaning that debtors (or their attorneys, if they're using one) would often file for bankruptcy and list those debts, any way, in the reasonable hope and expectation that the creditor(s) would not, in the first place, even mount any challenge against their discharge. And, quite invariably, those debtors turn out to be dead right in their presumption - those debts, though nominally nondischargeable, get discharged nevertheless!
In the next article, I shall address the general issue of the legal eligibility requirements for debtors to file for bankruptcy.
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