Since the radical changes in the Bankruptcy Code in 2005, many people incorrectly believe that credit cards can no longer be discharged in a bankruptcy. However, there is nothing in the specific nature of credit card debt that makes them nondischargeable in a bankruptcy. Section 523 (a) of the Bankruptcy Code sets out a variety exceptions to discharge that are based on the type of debt itself. Credit card debt is not one of them.
When credit card debt is accepted from discharge it will usually be based on the provision in Section 523 (a)(2) which deals with fraudulently incurred obligations made by the debtor. This provision is used mostly by credit card companies to object to the dischargeability of their particular obligations in a bankruptcy case. The focus of Section 523 (a)(2) is on the conduct of the debtor in how the debt itself was incurred.
Section 523 (a)(2)(B) applies to the debtor that provides a creditor with a written false financial statement. Section 523 (a)(2)(A) applies if the creditor alleges “false pretenses, a false representation, or actual fraud, other than a statement representing the debtor’s or an insider’s financial condition.” This requires that the creditor prove both the debtor’s intent to deceive and the creditor’s reasonable reliance on the representation. For example if a debtor made false representation when applying for a credit card, this would be a basis for the creditor to object to the discharge of that debt.
Another typical example of conduct which could result in the nondischargeability of debt would be when a debtor charges large amounts on the credit card right before filing bankruptcy. Essentially the creditor would argue that the debtor was aware of their inability to repay the debt when incurring the debt and, therefore, the incursion of the debt was in itself fraud.
A debtor could also draw objections from a creditor if the credit card debt was incurred by using the card for gambling.
Section 523 (a)(2)(C) addresses luxury goods and services and cash advances. Specifically, with consumer debts owed to a single creditor in excess of $550 incurred within 90 days of the filing of the bankruptcy case are “presumed nondischargeable.” In the same provision, obligations to pay cash advances of $825 obtained within 70 days of the bankruptcy filing are also “presumed to be nondischargeable.” This presumption can be rebutted by the debtor.