Can I Be Prosecuted for Fraud for Defaulting on Credit Cards?

by Craig Berman

Credit card issuers go to great lengths to collect unpaid debts, which sometimes results in taking legal action against someone delinquent on their accounts. These lawsuits, whether from the issuer or an outsourced collection agency, generally seek to recover the money owed. However, anyone who knowingly included fraudulent information on their application, or made purchases knowing that they were about to file for bankruptcy, risks criminal prosecution for fraud as well.

No Debtor Prisons

You won’t go to jail simply for defaulting on the debt. Even though you presumably signed an agreement when you applied for the card to repay the issuer for any purchases you charged, there are no debtor prisons for those who find themselves unable to do so. Failing to repay a debt isn't grounds for criminal prosecutions if it's the result of an honest inability to cover the charges. Credit card companies ordinarily seek their money through collection efforts or by filing a civil suit.

False Pretenses

For the credit card companies to undertake a criminal prosecution, there needs to be evidence that you obtained your credit line on a fraudulent basis or bought items for which you never intended to pay. Filling out the application with inflated financial information, and therefore receiving a credit line under false pretenses that you otherwise wouldn't have been eligible for, is one example. Information on this could come out in a bankruptcy hearing, and a credit card issuer that had a customer default on a significant balance may choose to press charges if information comes out that indicates the borrower illegally inflated his income on his application. However, criminal prosecutions based on these circumstances are rare.

Against the Law

Because credit card companies don’t often prosecute for fraud doesn’t mean they can’t, or that the consequences aren't severe if they choose to do so. Federal law makes it a crime to make a false statement for the purpose of influencing the action of a federal bank, and most card issuers have an affiliation with federal banks. Those who make such false statements can face up to 30 years in prison and a $1 million fine for each count.

No Intent to Pay

You can also face prosecution for unpaid credit card debts if a judge determines that you never intended to pay them off. If you charge more than $600 on luxury items or use your credit card for cash withdrawals within 90 days of filing for bankruptcy, the bankruptcy court has the option to declare the debt non-dischargeable because of actual or constructive fraud. Actual fraud requires proof that the debtor explicitly intended to commit fraud, which is difficult to prove. Constructive fraud doesn’t require intent, but a pattern of purchases that indicates deceitful actions. In that case, the proof is on you to prove the purchases are legitimate, and while you won't go to jail for that, you're likely to find those debts are not wiped away in bankruptcy.