If you have started thinking that you should file bankruptcy in Maryland, you should quit using your credit cards. Why? Because Bloomberg News reports that the Bankruptcy Code, specifically, Section 513(a)(2)(C)(1),  sets forth a presumption against recent credit card debt discharge in a Chapter 7 bankruptcy.

Specifically, this presumption applies to any credit card debt of $675 or more that you assume to buy consumer goods within three months of your bankruptcy filing date.

Recent Bankruptcy Court discussion

Two years ago, the Bankruptcy Court for the Northern District of West Virginia discussed this presumption when it heard the case of a Chapter 7 debtor who had obtained an $8,000 cash advance with her credit card about 60 days before she filed bankruptcy. She bought consumer goods with this money.

Not surprisingly, the bank that issued her credit card petitioned the Court not to discharge this debt, arguing that the presumption found in Section 523(a)(2)(C)(I) precluded such a discharge. In this particular situation, however, the Court disagreed with the bank’s position. It noted that the presumption is exactly that, a presumption that any given Chapter 7 debtor can rebut with appropriate evidence.

This debtor presented such evidence. She testified that she had had no intention of defrauding the bank when she obtained the cash advance, and in fact fully intended to repay her debt. She also presented receipts to the Court showing the exact household goods purchases she used the $8,000 for. The Court concluded that her testimony and evidence sufficiently rebutted the presumption and consequently overruled the bank’s petition and discharged the debt.

Cautionary tale

Even though this particular Chapter 7 debtor managed to get her recent credit card debt discharged, you need to be aware of the Bankruptcy Code’s presumption against the discharge of such debts and act accordingly. Your best course of action is to stop using your credit cards once you begin thinking about filing bankruptcy.

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