Creditor Intent to Object

[jjones227]

I filed chapter 7 in April, 341 went well. Shortly after 341 my lawyer said a creditor was intending to object to discharge and would settle for $5000 (the overall balance was $16000). They claimed that I charged $5000 in the 5 months before filing. I thought there was a 70/90 rule. In the 90 days before filing, there were charges for under $200 (I forgot to stop automatic gym charges to the card). Five months before the filing there was one $2500 charged for an out of state lawyer to negotiate a deed-in-lieu with the mortgage co. When negotiations failed (and because of alot of credit card debt), I filed BK with a different attorney. Is this considered abuse?

[justbroke]

If you never had intent to pay it, then it is fraud. The only thing they could be going after is fraud. You and your attorney need to sit down and figure out if it's likely that you'll lose or not. If you're likely to lose -- and they can prove it -- then you may want to settle. If not, then you'd fight it or "call their bluff" by telling them that you won't settle.

First, they can't go after the entire balance unless they can prove the entire balance (every dollar) was fraudulent. Second, if you were making payments, then it's less likely that you didn't intend to pay. So, did you even make any payments after the $5K and $2.5K purchases? Lastly, the $200 in gym charges is really nothing.

Yes, there's a limit on what is "presumed" to be non-dischargeable. That's a presumption. However, anything outside the 70/90 days "presumption" can still be non-dischargeable if they can prove fraud or that you were insolvent and never intended to pay at the time you made the charge.

[sh9730]

Also, read in the "Adversary Proceedings" (which is what a creditor objection is called in legal terms) section! Lots of good info. If this is just a "scare" letter, and the creditor has not actually FILED an objection with the court....then many will advise you to see if they actually file. The risk you take with that approach is that they likely wont settle for as low amount if they have gone to the trouble of filing. But often, they never do file! Its expensive for them.....

Also, if they are ALREADY saying they will settle for 5K, then offer them some lower amount if you think you need to....

[jjones227]

I continued to pay on the credit card up to March, 2011. I filed in April. The $2500 was charged in 11/2010. There was no intent to file bankruptcy until deed-in-lieu negotiations failed in March. I understand your answer. We disputed charges and are waiting for credit card co. answer.

[justbroke]

With that information, and upon review by your attorney, I would call their bluff by not even responding to their "threat" letter. In many cases, these are just threats to "extort" payment of otherwise dischargeable debt.

[bcohen]

I continued to pay on the credit card up to March, 2011. I filed in April. The $2500 was charged in 11/2010. There was no intent to file bankruptcy until deed-in-lieu negotiations failed in March. I understand your answer. We disputed charges and are waiting for credit card co. answer.

Considering that the burden of proof is on the creditor to show (based on a preponderance of the evidence) that you knowingly took on the debt while you were insolvent and had no intention of paying it back, I would say to call their bluff and ignore the letter. The mere fact that you spent $2500 to try and save your home does not prove fraudulent intent, and the fact that you made 4 or 5 more months of payments on the account further proves your intention to pay the debt.

Also, the likelihood of a creditor objection or AP is extremely small, unless there is clear-cut evidence of blatant fraud on your part. I know several people who filed for BK, even using their credit cards for necessary living expenses (i.e. food, medicine ,etc) up until the day they filed, and no creditors objected. Also, when I went to see bankruptcy attorneys because I was considering filing, everyone told me that out of hundreds of cases filed, they can only remember 1 or 2 creditor objections or APs.

So the bottom line is that unless you charged up your credit cards to purchase luxury items when you knew (or should have known) that you were insolvent, there is really nothing to be afraid of.