January 20, 2020

Are Social Security Overpayments Dischargeable in Bankruptcy?

social security demands repaymentBecause I handle both personal bankruptcy cases and Social Security disability cases, I frequently get questions about the interrelationship between these two areas of law.   A question I get at least once a month has to do with whether a Social Security disability overpayment is dischargeable in bankruptcy.

The short answer to this is “yes,” a Social Security overpayment is treated like any other unsecured debt.    There are exceptions to the dischargeability of a particular debt under Section 523 of the Bankruptcy Code and exceptions to the discharge as a whole under Section 727 of the Code.

Specifically, this means, however, that fraudulent behavior can result in a finding that this Social Security debt is not dischargeable.

Overpayment issues typically arise in disability cases when a claimant continues to accept and receive disability payments even after returning to work.  The question then becomes – “did the debtor/claimant knowingly and with intent to deceive the Social Security Administration continue to accept disability payments even when not entitled to do so?” [Read more…]

Debts Arising from Impaired Driving are Not Dischargeable

Recently I met with a client who was looking into filing bankruptcy because of credit card and medical debt.  Among his creditors, however, was an individual, an insurance company and fines due a local county.  When I asked about this, he explained that about a year ago, he was involved in an auto accident that was his fault.  He further explained that the individual sued him and that damages awarded were more than his insurance coverage, and that he also had fines because the accident occurred when he was under the influence.

He was unhappy to learn that Section 523(a)(9) of the Bankruptcy Code specifically excepts from discharge debts arising from the “death or personal injury caused by the debtor’s operation of a motor vehicle, vessel, or aircraft if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance.”

I read this Code section to mean that my client cannot discharge:

  • any damage award due to the accident victim
  • restitution ordered by the local county court
  • fines imposed by the local county court

What about property damage arising from this drunk driving accident.  I read the Code section to limit non-dischargeability to personal injury so I do not think that property damages would be excepted here.

Washington D.C. bankruptcy lawyer Morgan Fisher wrote a post about DUI damages and bankruptcy dischargeability last year.  He notes that an insurance company seeking subrogation damages (recovery of car repair payments from the negligent driver by an insurance company) could argue against dischargeability under other provisions of Section 523.   I believe that Morgan is referring to Bankruptcy Code Section 523(a)(6) which excepts from discharge debts arising from the “willful and malicious injury by the debtor to another entity or to the property of another entity.” [Read more…]

Christmas Shopping and January Bankruptcy

credit card transactionAs we approach the Christmas holiday season, I want to remind my readers of two things.  First and foremost, I want to wish all of my clients and blog readers a happy and healthy holiday season.   Financial struggles will come and go but if you have your family and your health, not a whole lot of other things matter.

Secondly, I would respectfully suggest that it is never too late to begin the process of tackling your financial issues.   Over the years I have met with many potential clients in January and February who bring me credit card bills containing charges incurred for presents in November and December.  They are ready to make a fresh start and want to file.

On more than one occasion I heard the explanation “well, I knew that I was going to have to file bankruptcy at some point – but I wanted my family to enjoy a nice Christmas first.”

From my perspective as a bankruptcy lawyer, this attitude will get you in trouble.  Common sense should tell you that you cannot run up your credit cards buying gifts, then wipe out that debt a month or two later by filing bankruptcy.

[Read more…]

When are Credit Card Debts at Risk for a Bankruptcy Challenge

Nine times out of ten, when I meet with a potential bankruptcy client, that individual will have credit card debts.  In some cases, credit card debt can be startlingly large – I have seen many cases that include over $100,000 of credit card debt.

As you may suspect, the bankruptcy law provides that credit card lenders can challenge your discharge in certain circumstances.   You cannot, for example, go to an electronics superstore, buy a flat panel television and a $10,000 stereo system using your credit card, then file a bankruptcy the next week to wipe out the debt.

The Bankruptcy Code speaks to two situations in which credit card debt to a specific credit card lender can be declared non-dischargeable: [Read more…]

Recent Credit Card Use and Filing for Bankruptcy – What Are Some Guidelines?

Most bankruptcy lawyers will tell you that credit card contributes to most consumer bankruptcy case filings.  Often, overwhelming credit card debt is the primary reason for a filing.  For example, if you have $10,000 or more in credit card debt, and you send in only the minimum payment of 2% of the balance each month, you will need over 50 years to pay off your debt.  You can run your own numbers using an on-line credit card interest calculator.

Many people use credit cards as a means of survival.  Frequently, therefore, I see clients who desperately need to file bankruptcy but have used credit cards recently.  Not surprisingly, recent credit card use prior to bankruptcy is a problem – but just how big of a problem is it?

I recently received this question from a reader of my blog:

Hello, I had a question about chapter 7 bankruptcy. If I incur a lot of debt on my credit cards (like $30,000 worth) four or five months before declaring bankruptcy (for business expenses), could this be considered Bankruptcy Fraud?  In Massachusetts, the lookback period for credit cards is 90 days, but can it be extended further?

Here is my answer:  Bankruptcy Code Section 523 addresses this situation.  Section 523(a)(2) provides that:

consumer debts owed to a single creditor and aggregating more than $500 for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be nondischargeable; and

cash advances aggregating more than $750 that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 70 days before the order for relief under this title, are presumed to be nondischargeable;
The Code also provides that the term “luxury goods or services” does not include goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor.
However, Code Section 523(a)(2) also includes another test to determine the dischargeability of credit card debt.  The following debts are non-dischargeable:  

money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—

  (A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition;

  (B) use of a statement in writing—

      (i) that is materially false;
      (ii) respecting the debtor’s or an insider’s financial condition;
      (iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and 
      (iv) that the debtor caused to be made or published with intent to deceive;
So, what the Code provides is that non-essential credit card debts to any one creditor totaling $500 or more and incurred within 90 days prior to filing are presumed non-dischargeable.  And credit card debts of any amount, incurred at any time prior to filing may be deemed non-dischargeable if the creditor can prove that the debt was incurred under false pretenses (i.e., that the consumer used the card when he knew or should have known that he would be unable to pay back the debt).
The 90 day/$500 debt to any one creditor is a fairly easy argument for the credit card companies – those are hard to defend.  The false pretenses/false representation issue is more difficult for a credit card company to win because they have to prove what you knew or should have known.
Remember, however, that if the credit card lender files an objection, you have to pay a lawyer to respond and defend it – which can get expensive.
My practice, therefore, is to hold off on filing for as long as I can following my client’s last use of credit cards.  I also encourage my clients to make at least the minimum payment for several months while we are waiting to demonstrate good faith. 
If you find yourself using credit cards to pay household expenses, that should be a signal to you that you have a debt problem and need to speak with a bankruptcy lawyer.  If you find yourself in a bankruptcy lawyer’s office, you should think very carefully about using credit cards thereafter. 


Credit Card Balance Transfer Puts Chapter 7 Options in Jeopardy

This morning, I received an email from a potential client who made a very bad decision that will likely keep him from filing Chapter 7 for six months to a year.  Other than this one mistake, he is a clear Chapter 7 candidate:

  • his household income is below the median – so we do not have to deal with the means test
  • his house is modest – valued at around $120,000 with mortgage debt equal to or above the value.  He is also prepared to surrender his house
  • he has $70,000 in credit card bills – all fairly old
  • he has $1,000 of medical debt

What, then, is the problem?

[Read more…]

What Prompts a Dischargeability Objection by a Credit Card Lender?

First, I think you have a very insightful blog about bankruptcy issues. I refer your blog to the bankruptcyforum.com sight to all the guest and members there. I’m just curious on your opinion to my following Bk Trip. I was working 2 full time jobs, making about 65g’s a year, I filed Bk13 (was in a no asset, unsecured cc debt/loans (unsecured) for about 65-70gs) My last cash advances were May 06 (minimal one for $500) in April 06 (big one for $4000-6000). Brief outline from the last cash advances to date of filing:

April – cash advance of about 4-6gs’
May – cash advance of about $500
July – filed Bk 13 end of July
Aug – Ch13 341 Meeting
* Trustee objected to my “good-faith,” payback of $250 a month *
The Median Test proved I was not in presumption of abuse and I had negative -$60 disposable income, Schedule I and J proved I had $800
October – Objection to confirmation goes Easter District, state of Virginia Judge
* Judge did not want say yay or nea and wanted me to re-submit another plan, Judge mentioned I was not forced to work 2 jobs, I could quit one and convert to Ch13, or I could resubmit a new plan * It only made sense for me to quit one job than have to payback $800 bucks for the next 5 years *
Oct – I quit one job, converted to Ch7
Nov – Ch7 341 meeting
Now I’m just waiting to discharge (hopefully by January) last day for creditor objections Jan 8, 2007

At the time I was in Ch13, I didn’t hear of any objections from creditors or even a peep about my recent cash advances from April-May. (due to being a gambler) I thought it my Bk would be a big issue. Not a peep about that either. Now that I’ve converted to Ch7 and another 60 day to objection starts over. My concern is what are the chances of objection/adversary’s coming up from creditors. My thoughts are this, I haven’t paid any of them since June/July its been IF you count from MAY until now (DEC) about 6-7 months since my last cash advance (I think its like 180 days one should wait if they’ve had heavy spending on their credit cards – and since mine were cash advances due to gambling – I would think it would be a big issue!)

What are your thoughts?

Thanks, Mickey aka Catchmeifyoucan

Jonathan Ginsberg responds:  Mickey, thanks for the kind words.  To answer your question….my experience has been that most credit card lenders will not object to dischargeability if the total debt owed to that particular creditor is $15,000 or less.  I suspect that the cost of retaining counsel and pursuing smaller claims is too high.  I also think that the more time between your use of the cards, the better.  Here, you have a fairly large cash advance in April, but you do have a good faith payment in May, then a Chapter 13.  You did not say how large your total balances are to any particular lender.

Under the old law, debts that were not dischargeable in a 7 would be dischargeable in a 13.  That has now changed but I have not seen much of a change by the credit card lenders.  Here, because your loans were most likely coded as a Chapter 13, you may slip through the cracks.  This is even more likely if your case was filed in a busy filing district.

If the bankruptcy specialist at the credit card company wakes up, he would see that his company does have leverage to push you into some sort of a payback settlement.  However, if you have not heard anything by now, you may be under the radar.

[tags] recent credit card use and bankruptcy, dischargeability action, credit card advance, Section 523(a), Chapter 7 discharge [/tags]

Credit Card Company Loses a Discharge Action

My friend, attorney Howard Rothbloom, recently emailed me about his victory over MBNA in a discharge complaint filed against his client. In the MBNA vs. Horrocks case, the debtor had charged over $2,400 on his MBNA credit card less than one month prior to filing Chapter 7 bankruptcy.

MBNA’s lawyers filed an Adversary Complaint against Mr. Horrocks alleging (1) that he committed “actual fraud” pursuant to Bankruptcy Code Section 523(a)(2) and (2) that these charges were made within the 60 day “presumption of non-dischargeability period” set out at Section 523(a)(2)(C). Howard smartly noted, however, that the Complaint filed by MBNA was lacking in detail. It contained a number of allegations, but offered no proof.

Howard challenged MBNA by filing discovery materials including requests for admissions, which MBNA failed to answer. When a party fails to answer requests for admissions, those admissions are deemed “admitted.” Further, Howard cited a Northern District of Georiga case which held that “actual fraud” means more than using the credit card. The creditor must present evidence showing that the debtor had actual, subjective fraudulent intent. It appears that MBNA and its counsel felt that they could win simply on the fact that the debtor used his credit card shortly before filing. And, more likely than not, if they had made the effort, they very well might have won. But Judge Bonapfel sent a message to MBNA and other creditors – creditors need to produce evidence to prove their cases. Congratulations to Howard for holding the line, especially in light of the many anti-debtor provisions of the new law.

UPDATE: Attorney Susan Gantt recently emailed to update me that Judge Bonapfel has issued his order awarding debtor’s counsel Howard Rothbloom over $3,000 in attorney’s fees pursuant to Bankruptcy Rule 9011. Because creditor’s counsel failed to respond to the debtor’s discovery motions or his motion for summary judgment, the Bankruptcy Code requires that the Court impose sanctions against the creditor (MBNA) and its local counsel.

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