By far the vast majority of people who file Las Vegas bankruptcy are honest people who fell on hard times. For most of their debts, the bankruptcy court is a generous place. However, there are some debts that the Bankruptcy Code does not take kindly to, one of which is debt incurred by fraud. Here are six things to know about it.
- As stated in 11 U.S.C. § 523(a)(2), any debt incurred by “false pretenses, a false representation, or actual fraud” or a materially false statement in writing are not dischargeable in bankruptcy.
- In most circumstances, particularly with student loans, the burden is on the debtor to argue to the bankruptcy court that the debt should be discharged. Sometimes this is necessary even before the bankruptcy case is filed. With debts incurred by fraud, however, the burden is on the creditor to file the adversary proceeding and prove that the debt should not be discharged.
- The most common situation in which fraud occurs for most debtors is with credit cards. Sometimes debtors will charge a lot of money to a credit card before filing bankruptcy with no intention to pay it. It’s the creditor’s responsibility to try to enforce the debt.
- The Bankruptcy Code gives creditors an advantage depending on the kinds of goods and services a debtor purchases. For example, “luxury goods and services” that were purchased on credit within 90 days of a chapter 7 bankruptcy that are greater than $500 are not dischargeable.
- “Luxury goods” are defined as “goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor.” Bankruptcy courts are usually fairly lenient about what counts as a luxury good or service, but things like exotic vacations are definitely out—and those frequently cost more than $500.
- In the remaining minority of cases, though, debts incurred by fraud happen in business contexts.
It’s a common but false myth that people incur debt fraudulently to discharge it in bankruptcy. However, avoiding a splurge before bankruptcy is important. If you have debts that you are unsure that you can safely discharge, talk about it with an experienced Las Vegas bankruptcy lawyer.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-880-5554 to set up your free consultation.