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Archive for the ‘write off credit card’ tag

Prevent Fraud Challenges on a Credit Card Debt

October 12th, 2020 at 7:00 am

  

Very recent credit card purchases and cash advances can be a problem when filing bankruptcy. Smart timing can mostly solve this problem.


Last week’s blog post introduced the so-called “presumptions of fraud” in bankruptcy. Today we get into dealing with this issue through smart bankruptcy timing.

Bankruptcy Timing to Avoid the Presumption of Fraud

Here’s the key point: you greatly increase the risk that you’ll still have to pay a credit card debt if you file bankruptcy too soon after incurring that debt. You risk still having to pay the purchase(s) and/or cash advance(s) recently incurred. You may still have to pay that part of that credit card debt in spite of bankruptcy.

But you can avoid much of that risk by timing your bankruptcy right. The presumptions of fraud are in effect for only a relatively short period of time after you make the purchase or cash advance. You avoid the presumption of fraud simply by filing bankruptcy after that short period of time has passed.

The Presumption Period for Credit Card Purchases

The presumption period of time for purchases is 90 days from the time of each purchase. It only applies if the purchase(s) made within that 90-day period exceed(s) $725. (U.S Bankruptcy Code Section 523(a)(2)(C)(i)(I), with that $725 dollar amount valid from 4/1/19 through 3/31/21.)

So what happens if you file bankruptcy within 90 day after making a large enough credit card purchase(s)?

Maybe nothing bad would happen. The creditor may not challenge the discharge (legal write-off) of the debt on that purchase. Then bankruptcy would discharge that debt regardless when you made that purchase.

Or the creditor could challenge the discharge of that recently incurred portion of the debt. It could assert that you made the purchase within the 90-day presumption period before filing. The creditor could make this challenge in one of two ways.

First, it could contact your bankruptcy lawyer about its intent to raise this challenge. Or second, the credit card creditor could make the challenge directly in bankruptcy court. It would have its lawyer file a narrowly-focused legal proceeding asking that the debt not be discharged.

Your Response with Contrary Evidence

Either way, then you’d have a chance to push back. Just because your purchase(s) fall within the 90-day presumption period does not necessarily mean you’ll have to pay the debt. Remember that the whole debt is usually not at issue, only the purchase(s) made during the 90-day presumption period.

Beyond that, the presumption is just that and no more. It’s an initial presumption that you did not intend to pay the debt when you made the purchase. When you incur a debt you are promising to pay it. If you incur that debt without intending to pay it, the law treats that as a fraudulent misrepresentation. The law presumes that if you made a purchase within the presumption period you didn’t intend to pay it. The creditor can and likely will win on that presumption if you don’t push back.

But you can push back. You can respond, with your bankruptcy lawyer’s assistance, that you actually did intend to pay the debt on the purchase(s). First, you can simply testify that your honest intention at that time was to pay that debt. Then you can back that up perhaps by saying you were not intending to file bankruptcy at that time. You didn’t decide to file and write off the debt until after you made those purchases. You can even bring up what event(s) pushed you into deciding to file bankruptcy after making the purchases. (This all of course assumes that these facts are true.)

In other words, you can defeat the presumption of fraud with evidence of no fraud.

Then the creditor may be convinced and could back down completely, and withdraw its challenge. Or it can negotiate a settlement, with both parties agreeing that you pay something, less than the amount the creditor wanted. Or, both sides could stand fast and have the bankruptcy judge decide whether and/or how much you would pay.

The Presumption Period for Cash Advances

The presumption of fraud for recent cash advances works the same way as with recent credit card purchases. There’s just a tweaking of the details. The presumption period of time for cash advances is 70 days from the time of each cash advance. (Not 90 days.) It only applies if the cash advance(s) made within that 70-day period exceed(s) $1,000. (Not $725.) (Bankruptcy Code Section 523(a)(2)(C)(i)(II), with the dollar amount valid from 4/1/19 through 3/31/21.)

Everything stated above about how the credit card presumption of fraud for purchases works applies to cash advances too. Most importantly, the creditor has to raise the presumption or else it has no effect. And if the creditor does so, you still have the opportunity to refute and defeat the presumption. That is, you and your bankruptcy lawyer can present evidence that you had intended to pay the debt at the time you made the cash advance(s).

Bankruptcy Timing and These Presumptions of Fraud

Besides being able to defeat these two presumptions of fraud, you can usually avoid them altogether. You do so by waiting to file bankruptcy past the 70- and 90-day presumption periods.

Sometimes waiting is easy. But in many circumstances time is not on your side. You are   with pressure from creditors. You may have received a summons and complaint from a creditor. You may have your paycheck being garnished. Or you may have a vehicle at the risk of repossession or a home at risk of eviction or foreclosure.

Also, while you’re waiting to file bankruptcy bad things can happen that you don’t expect. The IRS or state tax authority may record a tax lien. A creditor lawsuit you don’t even know about could turn into a judgment against you. A creditor may try to take some other unexpected action against you or your possessions.

Deciding whether to delay filing bankruptcy to get past a presumption period is a balancing act requiring legal advance. It usually involves balancing several considerations and then making an informed choice about your best timing. You really cannot make the best judgment call on this without a bankruptcy lawyer’s thorough knowledge and experience.  

Beyond the Presumptions to Regular Fraud

Another reason that legal advice is necessary is that the presumptions of fraud are not the end of the story. The presumptions are a tool that gives credit card creditors a modest advantage. But creditors can certainly raise fraud and misrepresentation-based challenges without that advantage. This applies to credit card creditors and essentially all creditors. If a creditor believes that the facts bear this out, it can try to argue that you incurred its debt with bad intentions of various sorts. This can happen regardless that the debt was incurred longer than 70 or 90 days before your bankruptcy filing.

Without getting into this more here, the point is that avoiding the presumption periods doesn’t necessarily mean you’re safe. A person could certainly make a credit card purchase or cash advance 6 months before filing bankruptcy with no intent to pay that debt. Or whenever. If a creditor believes that you incurred a debt under fraudulent circumstances, whenever that happened, the creditor could raise a challenge.

Rest assured that these challenges—with or without the presumptions—do not happen in most bankruptcy cases. Your lawyer will help you anticipate any such challenges. Then he or she will give you advice to prevent and, if necessary, defeat any such challenges.

 

Smart Timing with the Presumptions of Fraud

October 5th, 2020 at 7:00 am

You can avoid the presumptions of fraud, and so discharge more of your credit card debts, by timing your bankruptcy filing right.   

 

This blog post continues a series about the smart timing of your bankruptcy filing started back in July. (It’s been interrupted by urgent blog posts related to the pandemic—about unemployment benefits and the federal eviction moratorium.) The last in this timing series was about how bankruptcy timing helps with income tax liens.

Important Examples of Good (and Bad) Timing

Since it’s been so long since we introduced this, here is a list of some of the main consequences of good and bad bankruptcy timing. Whether:

  1. the bankruptcy case includes recent or ongoing debts or not
  2. you have to pay an income tax in full, in part, or not at all
  3. you must pay interest and or penalties on an income tax because of a tax lien
  4. you can discharge (legally write off) a credit card debt, or a portion of it
  5. you can discharge a student loan debt
  6. you qualify for a vehicle loan cramdown—reducing monthly payments, interest rate, and total debt—and still keep the vehicle
  7. you qualify for a personal property collateral cramdown—paying less—and still keep the collateral
  8. you stop the repossession of your vehicle in time, or lose it to the vehicle loan creditor
  9. you prevent the foreclosure of your home in time, enabling you to catch up over time
  10. you get more time to sell your home, including possibly years more
  11. you qualify for a Chapter 7 case under the “means test,” or instead must file under Chapter 13
  12. you qualify for a 3-year Chapter 13 payment plan or instead must pay for 5 years
  13. your sale or gifting an asset is a “fraudulent transfer
  14. your payment to a friendly creditor is a “preference” and must be returned
  15. you can keep all of your assets if you’ve moved from one state to another in the past several years

We give you this list again here to give you an idea how important the timing of your bankruptcy can be. There’s a good chance that one or more apply to you. If they do, to learn more, please call a bankruptcy lawyer to see how these apply to you.

We covered #3 about income tax liens in a number of blog posts. Today we start into #4: how bankruptcy timing affects the discharge of credit card debts.

Avoiding a “Presumption of Fraud” through Good Timing of Bankruptcy

A main goal of bankruptcy is to forever discharge your debts. Under limited circumstances a creditor can challenge your ability to discharge a debt. One of those circumstances involves the length of time between when you incurred the debt and when you file bankruptcy. If you file bankruptcy too soon after incurring the debt its creditor may more easily be able to challenge your ability to discharge that debt. There’s a “presumption of fraud” regarding that debt, or the portion that was incurred shortly before the bankruptcy filing.

What “Fraud”?

There’s a basic principle in bankruptcy law about honest debtors. People should generally be able to discharge their honestly-acquired debts. But debts acquired by being dishonest with creditors should not be discharged.

The dishonesty at issue here involves lying to qualify for or to use credit. Examples are giving false information when applying for credit or writing a check that you know will not be good. Or using a credit card for a cash advance or purchase that you never intend to pay. The creditor who you owe on a debt incurred like this could try to prevent you from discharging its debt. Its grounds for challenging the debt discharge would be that you incurred the debt through dishonesty or fraud.

(Note that most people acquire their debts honestly. So their creditors don’t have grounds for objecting to the discharge of the debts. This includes credit card creditors. So creditor challenges to the discharge of debts are relatively unusual. The point is that you can act appropriately to minimize such challenges by your creditors.)

What’s a “Presumption of Fraud”?

Dishonesty and fraud are hard for a creditor to prove. That’s because they requires evidence of a debtor’s bad intentions. The creditor has to show evidence that a person got or used credit through dishonest intention.

Because banks have a lot of influence over the laws, the Bankruptcy Code contains “presumptions of fraud.”  These acknowledge that it’s difficult to get into the minds of debts to know their good or bad intent. These “presumptions” presume bad intent under certain factual circumstances. When these factual circumstances are met, the law presumes that the debt at issue is fraudulent. That is, that the debt will not get discharged in bankruptcy.

However, the debtor can then present other evidence that the debt was in fact honestly incurred. That evidence may convince the creditor to drop the challenge. Otherwise a bankruptcy judge weighs the evidence. He or she determines whether the debtor incurred the debt honestly and thus whether to discharge the debt.

So, a “presumption of fraud” makes it easier for a creditor to establish that a debt is fraudulent. The creditor needs less evidence. It will win unless the debtor responds and convinces the creditor and/or the judge that it was an honest debt.

The Factual Circumstances for the “Presumptions of Fraud”

There are two sets of facts in which a creditor doesn’t need to provide evidence of a debtor’s dishonest intention. Fraud is presumed to have occurred.  A creditor just needs to show that the set of fact are met—that certain facts are true.              

These facts involve the timing and amount of a credit card purchase or cash advance.

The first set of facts: buying more than $725 in “luxury goods or services” from any single creditor during the 90-day period before you file your bankruptcy case. “Luxury goods and services” applies to just about anything which isn’t a necessity. A debt of more than $725 incurred in the 90 days before filing bankruptcy is presumably fraudulent. That means bankruptcy will not discharge that debt. (Again, this assumes the debtor does not challenge and prevail against this presumption.) See U.S Bankruptcy Code Section 523(a)(2)(C)(i)(I), with the dollar amount adjusted and valid from 4/1/19 through 3/31/21.

The second set of facts: making a cash advance of more than $1,000 from any single creditor during the 70-day period before you file your bankruptcy case. Such a cash advance would be presumably fraudulent, and bankruptcy would potentially not discharge that debt. Bankruptcy Code Section 523(a)(2)(C)(i)(II), with the dollar amount adjusted and valid from 4/1/19 through 3/31/21.

The rational basis for these presumptions is that filing bankruptcy so soon after incurring such debts likely means you didn’t intent to pay them. Again, that assumes you don’t give convincing evidence to the contrary.

Bankruptcy Timing and These “Presumptions of Fraud”

Notice how precise the timing is in these two presumptions. They apply only if you file bankruptcy within the applicable 90-day and 70-day periods after incurring the debts. So you can altogether avoid these presumptions of fraud by simply waiting to file bankruptcy until after those periods of time have passed.

This blog post is already way too long. So next week we’ll look at some practical aspects of timing your bankruptcy in light of these presumptions of fraud.

 

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