Credit card issuers sometimes challenge the discharge of their debt in bankruptcy by filing an adversary proceeding claiming that the debt was incurred by fraud and therefore should be excluded from the discharge under §523(a)(2). This is sometimes called a "non-dischargeability action".
Credit card debt may be non dischargeable in bankruptcy under either of two legal theories:
This issue used to arise only in Chapter 7 prior to the 2005 bankruptcy code amendments. Now, creditors can contest the discharge of debts in a 13 as well based on a claim of fraud.
Hot buttons for card issuers
While each card issuer has a different practice about non dischargeability actions, each of the following circumstances probably increase the likelihood that the debt may be subject to challenge by the creditor:
Generally, the longer the length of time between any particular use and the bankruptcy filing, the less likely the usage will trigger a challenge to dischargeability. A complaint for dischargeability based on fraudulent use of the card may seek non dischargeability for certain of the charges, not necessarily the entire balance.
How judges decide if the debt was incurred by fraud, thus barring the discharge of the debt.
What options are available
If you are concerned about a challenge by a credit card issuer to the discharge of a particular debt, there are several strategies available:
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