With the holidays upon us, I thought I’d write a blog entry that related to this time of the year. Many people seem to get in over their heads with debt during this season. What are the implications of this? Is it feasible to “have your cake and eat it, too,” by charging up a storm only to file bankruptcy shortly thereafter? The short answer to this question is “no.” That’s not to say that no one has ever gotten away with it, but there are clear rules in place to prevent this type of behavior.
No intent to pay = fraud
You can’t go anywhere or do anything during December without being inundated with holiday sales. It can be difficult for anyone to avoid the blatant consumerism of the season. I seem to get a lot of inquiries from people looking to run up their credit cards on gifts before filing bankruptcy early in the new year. Sounds like the perfect plan, right? Not so fast. There are a number of problems with this scheme. First of all, if you don’t intend to pay for those products (i.e. your objective is to seek to discharge the debts in bankruptcy), you are committing fraud. Debts incurred through fraudulent means are not dischargeable in bankruptcy. Creditors can and will object to your discharge of their debts on this basis. The creditor does have the burden of convincing the bankruptcy judge that the debtor had fraudulent intent when incurring that particular debt.
The 90 day rule for luxury goods
This burden becomes a lot easier for the creditor to prove when the charges were for luxury goods or services. Much of what we purchase over the holidays is less about need and more about want. The Bankruptcy Code raises a presumption of abuse when $650 or more of the debts owed to a single creditor were spent on luxury goods and services within 90 days of the bankruptcy filing. So what qualifies as a luxury purchase? The term is far broader than you might think. As defined by the Code, all goods or services “not reasonably necessary for the support or maintenance of the debtor or the debtor’s dependents” fall into this category.
No problem, you might think. I’ll just take out cash advances and buy those luxury goods with the cash, then file my bankruptcy. Good try, but the Code also has this one covered. Cash advances that are extensions of consumer credit totaling more than $925 to a single creditor are also presumed nondischargeable when incurred within 70 days of filing bankruptcy.
New year, new life
Provided you’re not deliberately trying to “game” the system, the beginning of a year can be an excellent time to file bankruptcy. Shedding excess debt that is wearing you down can lead to greater financial, emotional, and even physical well-being. It’s incredible to start off a new year without the stress and financial strain of carrying large amounts of debt. I’ve seen clients’ mental outlooks change from gloomy and overwhelmed to positive and optimistic after experiencing bankruptcy relief. The future looks a lot brighter when you don’t have to panic every month when those bills come in.
So if you’re not feeling the joy this holiday season due to overwhelming debt, make an appointment to see a bankruptcy attorney for a consultation. Experienced bankruptcy attorneys won’t judge you; we’ve heard it all. It really doesn’t matter to us how you got into debt, as long as you haven’t violated any laws. Those of us who have dedicated our careers to bankruptcy law truly feel that everyone deserves a fresh start. From this perspective, filing bankruptcy in the new year might just be the best holiday gift you can give yourself.