Using your credit card to buy holiday gifts could result in your having to pay that debt, even if you file for bankruptcy. As a Colorado Springs Bankruptcy Lawyer, I often explain to my clients that the Bankruptcy Code sometimes presumes such use to be fraudulent.
If you use credit to purchase luxury goods or services in the three months before filing your case, the Bankruptcy Code may require that those debts be repaid. Specifically, the Code provides:
If you spend at least $500.00 purchasing “luxury goods or services” from any single creditor within the 90 day period before you file, there is a presumption that this debt is fraudulent and therefore nondischargeable in your case.
The word “luxury” doesn’t just mean things like diamonds and furs. It means anything that’s not “reasonably necessary” for your support or maintenance, like food or basic clothing. As a Colorado Springs Bankruptcy Attorney, I once represented clients who used credit to purchase tools and materials to do some basic home repair. I advised them to hold off on filing their case, but they insisted that it be filed ASAP, with the result being that they ended up having to repay Lowe’s for the stuff they bought. The moral of the story, at this time of the year, is that most Christmas gifts, even inexpensive ones, under this definition, would be considered luxury items.
There are slightly different rules for cash advances. For cash advances, the amount is $750.00 and the time period is 75 days before filing your bankruptcy case. In the case of cash advances, if they meet the above criteria, they are considered nondischargeable, no matter what they were used for.
What this boils down to is that if you use your credit card or take a cash advance in order to purchase holiday gifts, and then file your case within 75 or 90 days, you are most likely going to have to pay the bill or repay the cash advance.
Of course you can probably avoid these problems by waiting to file your bankruptcy case more than 90 days after using credit or more than 75 days after receiving a cash advance. But even if you wait, there’s a possibility that the creditor will be able to show that you used the credit card or obtained the cash advance at a time when you were thinking about filing for bankruptcy. In that case, the debts may not be dischargeable.
The best way to avoid this problem when doing your Christmas shopping in Colorado Springs this year is to not use credit and don’t take a cash advance, especially if you’re thinking about filing for bankruptcy in the near future.