Credit card debt is often one of the primary reasons people consider filing for bankruptcy. Filing for bankruptcy gives you the chance to rebuild your financial situation, and it may even discharge much of your debt.
While bankruptcy often discharges many forms of credit card debt, there are situations where the court may deem this type of debt non-dischargeable. Understanding these scenarios can help you prepare for the challenges of the bankruptcy process.
When there is suspicion of fraud
One of the main reasons credit card debt becomes non-dischargeable is fraud. If someone uses a credit card knowing they cannot repay the balance, the court may view this as fraudulent behavior. This can include making large purchases or taking cash advances shortly before filing for bankruptcy. In general, cash advances and credit card purchases for luxury items or expensive services within 90 days of filing are non-dischargeable. Proving that you took on these debts in good faith can be challenging.
When debt has legal protection
Credit card debt linked to tax obligations, alimony, child support or other legally protected categories may not qualify for discharge. Courts often treat these debts as separate from typical consumer credit. This makes them harder to discharge through bankruptcy.
When debt stems from malicious activity
Any debt resulting from willfully malicious acts will likely remain non-dischargeable. This includes using a credit card for illegal activities or scamming another party. Courts emphasize that bankruptcy cannot provide relief for debts related to intentional harm or illegal conduct.
If you are considering bankruptcy to manage credit card debt, make sure you fully understand the rules surrounding dischargeable and non-dischargeable debts. Being aware of these limitations will help you avoid surprises and prepare for better financial planning.