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Will Chapter 7 discharge your recent credit card debt?

One of the reasons you may be considering filing Chapter 7 bankruptcy in Tennessee is that you believe Chapter 7 discharges your credit card debt. But is this always true?

An article in Bloomberg News reported that the court may not discharge your recent credit card debt. Why? Because a little known provision of the Bankruptcy Code, Section 523(a)(2)(C)(I) to be precise, sets forth a presumption against discharging whatever credit card debts you take on within 90 days of filing bankruptcy if that debt represents the purchase of $675 or more of consumer goods.

Recent case law

In a recent case before the Bankruptcy Court for the Northern District of West Virginia, the debtor obtained an $8,000 cash advance on her credit card. She filed Chapter 7 bankruptcy two months later. The bank that issued her credit card filed a motion with the Court requesting denial of discharge based on the Section 523(a)(2)(C)(I) presumption.

In this particular case the Court overruled the bank’s motion and granted the discharge. It noted that the presumption against recent credit card debt discharge is merely that. A presumption. The debtor can overcome it with clear and convincing evidence. This debtor presented such evidence in the form of her testimony and receipts showing the purchases she made with the cash advance monies.

The court held that no evidence proved that the debtor intended to defraud her bank when she obtained the cash advance. And even though she clearly purchased over $675 worth of consumer goods with the money, the items she purchased were common household items, not luxury items.

Best practices

Despite the Court granting this particular Chapter 7 debtor the credit card debt discharge she sought, you should stop using all your credit cards once you begin seriously considering bankruptcy.

This is general educational information and not intended to provide legal advice.

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