Creditors’ Killer Instinct: Stop “Loading Up”

Terry Jessop & Bitner Newsletter

Issue 21, May 2015

Most people understand that bankruptcy discharges debt. Sometimes they forget that certain debts cannot be discharged, like fraudulently-incurred debt or debt arising from willful and malicious injury. What they also forget, or may not know, is that the law presumes some debt is nondischargeable. This presumption often applies to open-ended accounts. Creditors should scrutinize these kinds of accounts, looking for the benefit this presumption gives.

Debt Presumed Nondischargeable

There are two categories of debt which are presumed to be nondischargeable. The first is consumer debt owed to a single creditor totaling more than $650 for luxury goods or services incurred by an individual debtor within 90 days of filing bankruptcy. The second is cash advances totaling more than $925 on an open-end consumer credit plan obtained by a debtor within 70 days of filing bankruptcy. These two categories are sometimes referred to as “loading up.” The debtor is getting cash and buying stuff he will not be able to afford after bankruptcy and he does not intend to repay.

Credit card lenders should scrutinize the credit activity of every debtor who files bankruptcy, examining carefully all charges made within 90 days of bankruptcy. If luxury goods total more than $650 within 90 days of bankruptcy, or cash advances exceed $925 within 70 days of bankruptcy on any credit card account, those debts are nondischargeable and a lender should make demand on a debtor in bankruptcy for payment.

Go After Other Debt

If either of these two thresholds are met, a creditor should look more broadly and pursue all of the debt incurred in close proximity to the bankruptcy filing. And if the presumption is not met it does not mean that the rest of the debt is automatically discharged. When there is a pattern of loading up, it generally means the debtor has no intention of paying the debt. Any debt incurred without the intent to pay can be exempted from discharge.

Is it Worth Pursuing?

Although the bankruptcy code presumes that certain debts are nondischargeable, the law requires a creditor to file a lawsuit to keep the debt from being discharged. The ensuing litigation may be expensive if the case goes to trial. Nevertheless, when there is a presumption of nondischargeability most debtors cave, agreeing to reaffirm the debt, not oppose the discharge, or agree to the entry of a nondischargeable judgment and a payment arrangement.

Although bankruptcy law creates a presumption of nondischargeability, most creditors shy away, allowing the debtor a free discharge because of a fear of litigation costs. Do not forget that it is the same fear of cost that causes most debtors, when confronted with a demand for the payment of a nondischargeable debt, to enter into an agreement to settle.

This firm has experience prosecuting all types and kinds of nondischargeable debt. Please give us a call if you have questions or wish to pursue a debtor who is loading up.

© Terry Jessop & Bitner May 2015