Inadequate Explanation For Large Amount of Unsecured Debt Leads Cour...

A “credit card bust-out” is a scheme in which someone purchases a large amount of goods on credit card debt, conceals the goods, and then files Chapter 7 bankruptcy to wipe out the credit card debt. It’s an abuse of the bankruptcy system designed to help honest debtors, and I as much as anyone else get satisfaction seeing one of these schemers busted in bankruptcy court.

I recently read a case where a debtor was denied a bankruptcy discharge because he incurred large amounts of credit card debt and then told the trustee he had no record of assets purchased or how the credit card debt was incurred. The subject debtors incurred about $600,000 of debt of which half was credit card debt. They filed Chapter 7 bankruptcy with schedules listing minimal assets. The trustee demanded copies of financial information including 12 months credit card statements, retirement account statements, and brokerage statements. The debtors produced none of that information saying they were unable or unwilling to produce the documents. They gave no explanation of why the requested documents were not in their control or otherwise easily obtainable.

The bankruptcy court denied the debtors a bankruptcy discharge based upon their rfusal to provide documentation and their inability to explain the discrepancy between their minimal assets and large amount of debt. The court said the circumstantial evidence shows the debtors knowingly and fraudulently withheld information from the Trustee in order to impede the Trustee’s ability to learn about their financial condition leading to bankruptcy.

These debtors got what they deserved. You can’t file Chapter 7 bankruptcy to wipe out $300,000 of credit card debt, and when asked for an explanation use the equivalent of “the dog ate the homework” response. The case is In re Wheaton 11-09750.

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