Bankruptcy

Excessive Credit Card Debt In Unrealistic Plan To Save Business Not Grounds To Deny Chapter 7

By Jonathan Alper

A debtor?s business is failing; there is no rational prospect of saving the business in poor economic environment. Nevertheless, the business owners tries to keep the business alive by funding operating deficits with charges on several personal credit cards. The owner runs up a substantial credit card debt, all while his business continues to decline rather than recover. After exhausting all credit card limits the owner files Chapter 7 bankruptcy. The United States Trustee objects to the Chapter 7 bankruptcy because the debtor incurred large credit card debt with no prospect of repayment. The Trustee claims that the Debtor?s "lavish" credit card spending was conducted in "bad faith" and that bankruptcy relief should be denied.

The bankruptcy court allowed the Chapter 7 bankruptcy to proceed. The Court explained that excessive and irresponsible expenditures does not necessarily translate to bad faith when the debtor has a sincere, although unrealistic, hope of repayments. As long as the debtor did not purposefully intend to accumulate credit card debt and file bankruptcy thereafter, the debtor should not be denied bankruptcy relief. The Court pointed out that many Chapter 7 debtors have been financially imprudent and unrealistic, but as long as credit card abuse is not intentional and purposeful the debtor is eligible for bankruptcy relief. In re Reese, Case No. 6:07-4456

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida

Full post as published by Florida Bankruptcy Law on April 26, 2009 (boomark / email).