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6. Non-Dischargeability.
Credit card/revolving charge debts.
The presumption of nondischargeability for fraud in the use of a credit card, set out in § 523(a) (2) (C), is expanded. The amount that the debtor must charge for "luxury goods" to invoke the presumption is reduced from $1225 to $500; the amount that the debtor must withdraw in cash advances in order to invoke the presumption is reduced from $1225 to $750. The period of time prior to the bankruptcy filing in which these charges must be made in order for the presumption to apply is increased from 60 to 90 days for luxury goods, and from 60 to 70 days for cash advances. Many debtors when faced with impending bankruptcy have gone out and "maxed out" the available balances on credit cards in anticipation of a total discharge. This minor change is anticipated to result in substantial aggregated recoveries particularly with respect to low balance credit cards. It creates another collection point for lenders.
Student loans.
Section 523(a) (8) is amended to make student loans nondischargeable, in the absence of undue hardship, regardless of the nature of the lender, thus covering loans from nongovernmental and for-profit organizations. Student loans typically constitute a blend of government guaranteed and non-guaranteed loans which are often issued by the same lending institution for one school. Previously, only government guaranteed loans were non-dischargeable. From a lending standpoint particularly on the mortgage side a large residual of non-dischargeable debt is being created for which Chapter 7 will no longer be the answer. This will eventually creep into the underwriting process and may adversely affect mortgage applicants who may have to retire this debt prior to being approved.
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