In the credit card context, that usually means that the creditor alleges that either the card was obtained by using false information, or, more frequently, that the use of the card by the debtor was fraudulent.
Fraudulent use of the card could include running the balance up on the eve of bankruptcy or using the card knowing that you didn’t intend to repay the debt.
Factors suggesting fraud
To decide whether a credit card charge was incurred by fraud, judges sometimes use a checklist of factors that suggest fraud, since there is seldom explicit evidence of dishonesty.
Those factors which the court weighs in making its decision are :
- the length of time between the charges and the bankruptcy filing;
- whether or not an attorney had been consulted concerning the filing of bankruptcy before the charges were made;
- the number of charges made;
- the amount of the charges;
- the financial condition of the debtor at the time the charges were made;
- whether the charges were above the credit limit of the account;
- whether the debtor made multiple charges on the same day;
- whether or not the debtor was employed;
- the debtor’s prospects;
- whether there was a sudden change in the debtor’s buying habits; and
- whether the purchases made were luxuries or necessities. See In re Dougherty, 84 B.R. at 657.
The factors used vary from circuit to circuit and the exact standard (if there can be said to be an “exact standard”) differs depending on where the bankruptcy is filed.
Presumption of fraud
The bankruptcy code now includes a presumption that certain debts are non dischargeable. The presumption covers debts for luxury goods and services incurred within 90 days of filing or cash advances of more than $875 on a credit card within 70 days of filing.
A presumption can be rebutted by evidence to the contrary; it simply shifts the burden of proof to the debtor.
Proof of fraudulent debt
It’s not enough for a creditor to just claim that a debt was incurred by fraud. To actually insure a debt isn’t discharged in bankrutpcy, the creditor must file a timely adversary proceeding in the bankruptcy case and present facts at trial that prove fraud .
If you are concerned about a creditor claiming a debt is fraudulent, get good bankruptcy advice. Find a bankruptcy lawyer.