If you are seriously considering bankruptcy as your only way out of debt in Kentucky, you probably already know that a Chapter 7 bankruptcy wipes out your credit card debts as well as virtually all your other consumer debts. What you may not know, however, is that Chapter 7 may not discharge debts that you incur on your credit cards right before filing bankruptcy.

Deep within the Bankruptcy Code lies Section 523(a)(2)(C)(I). This little-known section includes a presumption against the discharge of any single credit card debt you acquire within 90 days before filing bankruptcy if that debt represents consumer goods purchases that total over $675.

Recent bankruptcy case

A recent case heard by a West Virginia Bankruptcy Court addressed this presumption. In that case, the Chapter 7 debtor obtained an $8,000 cash advance on one of her credit cards two months before she filed bankruptcy. She used the money to buy a variety of consumer goods whose combined purchase prices clearly exceeded $675. The bank behind the credit card objected to the discharge of this debt, citing the Code’s presumption in its argument. The Court, however, overruled the bank’s objection. It noted that the Section 523(a)(2)(C)(I) presumption is a rebuttable one, meaning that if a Chapter 7 debtor can present clear and convincing evidence that it does not apply to him or her, (s)he successfully rebuts it.

The debtor had testified that the presumption did not apply to her, supporting her testimony with receipts and other documentation. The Court found her testimony and evidence credible, clear and convincing. It noted that while her purchases totaled more than $675, they did not represent luxury items, but rather normal household products and goods for which consumers routinely use their credit cards in payment. It further held that her testimony also proved that when she took out the cash advance, she intended to pay off the debt and did not intend to trick, deceive or defraud the bank. Finding no fraud or wrongdoing, the Court therefore declared the presumption inapplicable in her case and discharged the debt.

Cautionary tale

Despite the fact that this particular Bankruptcy Court discharged this particular debtor’s recent credit card debt, you should not rely on your court reaching the same decision should you choose to acquire additional credit card debt within 90 days of the date you file bankruptcy. Your best strategy is to simply quit using your credit cards once you decide to file.