ADVERSARY PROCEEDINGS

FIGHT BACK AGAINST CREDITOR ABUSE

One of the less welcome developments in bankruptcy proceedings, has been the increasing aggressiveness of credit card companies in filing adversary proceedings under 11 U.S.C. §523(a)(2)(A) in bankruptcy court to try to prevent the debtor from discharging an individual debt. These cases are overall still relatively rare, but they are increasingly being filed by creditors. Most of these lawsuits involve less than a five thousand dollar claim.

An adversary proceeding is a lawsuit in bankruptcy court by a creditor against a debtor who has filed for bankruptcy. The lawsuit is started when the creditor files a summons and a complaint. Generally, when a credit card company files a lawsuit in the bankruptcy court they allege that the debtor defrauded the credit card company by using his credit card without intending to repay that debt. Under bankruptcy law, only a good faith debtor who used his credit cards with an intent to repay his debts but who is financially unable to pay them, is entitled to a bankruptcy discharge.

How do credit card companies know that the debtor did not intend to repay the credit card debt when he used his credit card?

The answer is that they generally don't know, but they file these lawsuits anyway, because they know that debtors, especially debtors who are not represented by an attorney, cannot afford to fight these lawsuits, and so the debtor usually agrees to settle these lawsuits by agreeing to pay back these debts after the bankruptcy. Not having an attorney can cost you a lot of money if you are sued. My review of court records indicates that unfortunately, almost all of these cases are settled by debtors. My advice: Get a lawyer and fight back.

How can a creditor prove that a debtor used his credit cards without intending to repay them?

The first answer to this question is that there is a presumption that certain charges within several months of your bankruptcy filing were charged with an intent to defraud the credit card company. Your lawyer should therefore make sure that you do not file for bankruptcy until this time period from the date that you last used your credit cards has passed before filing for bankruptcy, in order to protect you from this type of bankruptcy challenge. Credit card companies are also occasionally successful in these lawsuits if they can show that the debtor suddenly changed his spending habits and maxed out his credit cards on a luxury vacation or on luxury items shortly before filing for bankruptcy.

What other factors do courts look for in determining whether a debtor used his credit cards without intending to pay them, and therefore is not entitled to the bankruptcy discharge?

1) The length of time between the charges and the filing of bankruptcy;

2) Whether an attorney has been consulted concerning the filing of bankruptcy before the charges were made;

3) The number of charges;

4) The amount of the charges;

5) The financial condition of the debtor when charges were made:

6) Whether the charges exceeded the credit limit of the account;

7) Whether there were multiple charges on the same day;

8) Whether the debtor was employed;

9)  The financial sophistication of the debtor:

10) Whether the debtor’s spending habits suddenly changed:

11) Whether the purchases were made for luxuries or necessities.

What must the credit card company prove to the court to prevent the debtor from receiving the bankruptcy discharge?

The burden is on the plaintiff to establish each of the following elements of fraud (using credit cards without intending to repay them) by a preponderance of the evidence. To win this cause of action under section 11 U.S.C. §523(a)(2)(A), a creditor must establish the following:

(i) The debtor made a false representation;

(ii) At the time the representation was made, the debtor knew it was false;

(iii) The debtor made the representation with intention of deceiving the creditor;

(iv) The creditor sustained loss or damage as the proximate consequence of the false, material misrepresentation.

How can an attorney help you in fighting these adversary proceedings?

Your lawyer should review your situation thoroughly before filing for bankruptcy to help you avoid these situations. However, if you are sued in bankruptcy court by a credit card company that is challenging the dischargeability of a credit card account, you will need an attorney to fight for you.

I take a "No Settlement Policy" toward these cases, and I fight these cases aggressively by doing the following:

1. Filing counterclaims against the credit card company for costs.

2. Filing counterclaims against the credit card company for attorney fees that can be awarded to the debtor, if the debtor wins the lawsuit.

3. Aggressively using discovery demands to obtain necessary information to defend against the claim.

4. Filing  motions before the court to have the credit card company's complaint dismissed.

The key to winning these cases is to fight these cases aggressively. I generally demand that the credit card company discontinue their lawsuit immediately because I will not settle these frivolous lawsuits under any circumstances. I further notify the creditor that my client will fight the case through trial, and that my client will seek costs and attorney fees from the credit card company. I believe that if I settle these cases easily by giving the credit card company money to settle these lawsuits, that I invite them to bring more of these frivolous cases against my clients. The better approach is to let the credit card company know that they are going to have to spend more in attorney fees pursuing this lawsuit than their whole frivolous lawsuit is worth, and that you will be suing them in court for costs and attorney fees.

Jacob Silver, Attorney At Law

Office Address

1225 Franklin Avenue Suite - 325 Garden City, NY 11530

 

Telephone

(516) 374-1452

 

Fax

(718) 797-4141

 

Electronic mail

General Information: advocate@mindspring.com