In some cases, a creditor objects to the discharge of a debt. If the creditor is successful in objecting to the discharge then you still owe the debt after the bankruptcy.
For example, let’s say you take a vacation to Palm Springs, have a few dinners out, pick up some resort wear, get a massage, and in the process charge $2,000 to your Visa card. Then you realize you need to file bankruptcy. You hire an attorney a couple of weeks later and file bankruptcy around 2 months after that vacation.
Visa might object to the discharge of the debt owed to them. If they succeed you will still owe that Visa bill after bankruptcy. It will be “non-dischargeable”.
Will Visa succeed?
The grounds for the objection, in that case, would be that you incurred the debt through fraud. In other words, Visa would be telling the court that when you made the purchases you didn’t actually intend on paying the Visa bill.
But how can Visa prove that you committed fraud? It might be difficult for Visa to prove that you committed fraud. After all, how can they prove what was going on in your mind when you made those purchases? How can Visa prove your intent?
In fact, in my hypothetical, I said that you realized that you needed to declare bankruptcy after you made those purchases. So there wasn’t really any fraud.
To help the credit card companies Congress enacted some laws that provide presumptions of fraud in certain cases.
The following debts are presumed to be nondischargeable:
Within 90 days of filing bankruptcy: Debts for “luxury goods or services” amounting to more than $725 owed to a single creditor purchased within 90 days of filing for bankruptcy
Within 70 days: Cash advances totaling more than $1,000.
If one of the presumptions doesn’t apply the creditor can try to prove fraud but it’s much more difficult.
The takeaway from all this is that you should allow enough time to pass after you use your credit cards before you file bankruptcy. I can help advise you on this.
There are other debts that are non-dischargeable:
These debts are automatically non-dischargeable: domestic support obligations, government fines and penalties, student loans, drunk driving damages, restitution, a debt to a former spouse that was part of the divorce agreement, post-filing condominium fees, debts to your retirement plan.
These debts are non-dischargeable only if the creditor files an adversary action and the judge rules them to be dischargeable: fraud, theft as a fiduciary, willful and malicious injury.