Nondischargable Debt When Filing Bankruptcy
A Sacramento bankruptcy attorney comments on nondischargable debt when filing bankruptcy
On too many occasions a person filing a bankruptcy is lulled into believing that filing of bankruptcy is the answer to all their debt problems that is until their attorney receives a letter from a creditor’s attorney describing the facts and circumstances of usage that meets the definition of fraud. A creditor who can prove fraud may be able to hold the debt as nondischarable and therefore unaffected by the bankruptcy discharge. Using large amounts of credit in a short amount of time, making no minimum payments, or stating income that is higher than what was actually made at the time the credit card application was filled out will increase the odds of a nondischargability complaint being filed. In my experience the greatest number of nondischarability suits occur where the filer operated a small business incurring large amounts of debt to keep the business going or was a contractor dealing with an irate property owner who didn’t feel the work was up to par.
The nondischarability complaint is prefaced with a letter describing why the credit card company believes it has a case for prevailing on a nondischarability suit. The letter is an invitation to settle in order to save both sides the time and effort in litigation. The more the creditor has to expend on litigation the less slack will they give you on settlement and collection. A call to the lender explaining that the usage was in good faith may persuade the creditor in dropping its suit.
The creditor’s next step is to institute an adversary proceeding and file the complaint. What commonly occurs in these situations is settlement of the debt at say $150 a month until the debt is paid off. The creditor requests and is granted a default judgment holding the debt as nondischargable. The settlement usually has a provision for execution of the nondischargable debt by applicable state law if a payment is missed.
Proper planning and the realization that a nondischarability suit could occur may help in preventing one from being filed or mitigating the amount of debt owed.
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