Category Archives: Consumer Debt

BANKRUPTCY: CREDIT CARD TRANSACTIONS FRAUD? IT’S A MATTER OF TIMING

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Some types of debts cannot be discharged in bankruptcy.  These include income tax, child support and student loans.  Then there are other types of debts that should be dischargeable in bankruptcy, but become non-dischargeable because of how the debt was incurred.  For example, debtors that obtain money, property, or services through fraud remain liable for these debts after they receive their discharge.

 

To have a debt determined to be nondischargeable due to fraud, a creditor must show:

 

  1. The debtor made false representations to the creditor;
  2. The debtor knew the representations were false;
  3. The debtor made the representations with the intent of deceiving the creditor;
  4. The creditor relied on the representations; and
  5. The creditor sustained a loss as a result of the debtor’s misrepresentations.

 

It appears from the list above that fraud should be difficult to prove.  It’s actually surprisingly simple in cases involving credit card debt.  Debtor’s use of a credit card is often treated as an implied representation to the credit card company that the cardholder intends to pay the charges incurred.  AT&T Universal Card Servs v. Mercer 246 F.3d 391, 404 (5th Cir. 2001).  Since the debtor’s use of the credit card is a representation to the company that the cardholder intends to pay the charges, the biggest hurdle for the creditor to proving fraud is establishing that the debtor had no intention of repaying the debt.  Courts will consider many factors when determining if a debtor had no intention of repaying the debt, including the time between use of the card and the bankruptcy filing, debtor’s financial condition when the card was used, whether the card was used for luxuries or necessities, and whether the debtor consulted with an attorney about bankruptcy before incurring the debt.

 

As a general rule, debtors should not use a credit card during the six month period prior to filing bankruptcy.  Additionally,  debtors should not use a credit card once they make a decision to file bankruptcy or realize they will not be able to repay the debt.  Debtors who do not follow this advice risk being sued in bankruptcy court and having their debts declared nondischargeable.

DOMESTIC SUPPORT OBLIGATIONS GIVEN PRIORITY IN BANKRUPTCY

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The Bankruptcy Code provides special protection for parties’ owed domestic support obligations, such as child support, alimony, and spousal maintenance.  In its present form, the Bankruptcy Code provides that domestic support obligations cannot be discharged in a Chapter 7 case and receive priority status in Chapter 13 bankruptcy plan.  This priority status guarantees that domestic support obligations are among the first debts to be paid, and creditors owed this type of debt are entitled to be paid in full in a Chapter 13 plan.

 

I would like to take a moment and discuss an issue that affects those people who are owed a domestic support obligation by someone who has filed Chapter 13 bankruptcy.  In this article, I’m going to refer to the person owed the debt as the “creditor” and the person who owes the debt as the “debtor.”  As discussed above, the creditor is entitled to be paid in full in the Chapter 13 plan.  However, it is not always wise to require the debtor to repay the entire debt in the bankruptcy.  In order for a Chapter 13 bankruptcy case to be successful, the debtor has to prove that they have enough income to pay their household expenses plus their Chapter 13 plan payment.  If a debtor cannot show that their income is sufficient to pay these expenses, then the bankruptcy court will eventually dismiss their case depriving the debtor from the relief offered by a discharge.

 

In some instances, a debtor may owe so much in domestic support obligations, that they have no hope of making a Chapter 13 plan payment and still paying their other bills.  In these cases, if the debtor is required to pay their entire domestic support obligation, they will not be able to continue in bankruptcy.  The creditor should consider how the debtor’s other debts affect their financial situation.  If a debtor has substantial credit card debt, medical bills, or other debts, they may be behind on their child support, alimony, or spousal maintenance because they are financially overwhelmed by these other debts.  In this situation, the creditor should consider allowing the debtor to pay less than their entire debt in the Chapter 13 plan.  This will allow the creditor to receive partial repayment of what they are owed and allow the debtor to receive a discharge of their other debts.  Once these debts are discharged, the debtor will be in a better position to repay the remainder of the domestic support obligation.  Don’t forget, the domestic support obligation is not dischargeable, so allowing partial repayment in the Chapter 13 plan doesn’t mean that the creditor will not be paid in full eventually.  Sometimes accepting less than full payment of a domestic support obligation in a bankruptcy plan is the best way for a creditor to ensure that they will be paid.

How does filing Chapter 7 Bankruptcy affect my credit score?

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Many people know that filing bankruptcy will negatively affect their credit score.   However, many people fail to recognize that creditors use other criteria for determining their credit score.  We have clients who have received credit offers within a short time after they have completed their bankruptcy.  It is possible to have a higher credit score one year after completion of their Chapter 7 bankruptcy than if the person had not filed a Chapter 7 Bankruptcy at all.  Filing a Chapter 7 Bankruptcy may help your credit scores in the following ways:

First, your past payment history will be gone and your credit report will show “Discharged in Bankruptcy.” In the past, this negative payment history such as non-payments and failing to pay  on time have affected your credit score.

Second, if you are making payments on the items that you have elected to keep such as a house or a car, you will improve your credit score.   The bankruptcy discharge will appear on your credit report for up to ten years after you are discharged.  However, the fact alone may not mean that you cannot get credit.

Third, all of your eligible unsecured debt will be discharged.  One of the factors that is used to figure your credit score is your debt to income ratio.  Also your credit to the amount of debt that you have is also used as a factor.  Therefore, after your discharge, your debt to income ration should be much improved.

Budgeting Tips For 2011

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Here are eight ways to cut your monthly expenses…

1) Sell household items you don’t use/want/need.

2) Once a month, do a walkaround of your home and car, to spot needed repairs that could become costly ones if gone unnoticed.

3) Comparison shop – always, always, always compare prices, online and in stores. Learn which stores have the lowest prices on different types of merchandise.

4) Cook meals at home more often – s0me analysts estimate this habit could save you upwards of $1500.00 yearly!

5) Exercise and eat well to cut down on medical expenses.

6) Use coupons when possible.

7) Be sure to communicate about the household bills and budget with your partner or spouse once a week. Sit down once a week and do a written budget.

8) Negotiate your bills once a year. This works well for insurance, cable, cell phone, utilities, etc. If you can’t get a better deal from your current provider, switch.

A funny story from the world of credit…

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Okay, since here at DFW/Denton/Lewisville Bankruptcy we’re always addressing serious topics, I decided to keep it light today.

There’s a story buzzing around the internet that a 3 year-old recently got an American Express Gold Card application in the mail. Also, there are many report of dogs and cats getting credit card offers. If that’s the case, why is it so hard for qualified folks to get the applications??