Dischargeability of Recent Debt

Now that Thanksgiving and Black Friday are behind us, the Holiday shopping season is in full swing.  Many of you likely made purchases using credit cards or other credit accounts to make gift purchases.  If you’re already in a tight financial situation, keep in mind that the Bankruptcy Code has provisions built in that prevent a person from discharging debts that have been recently incurred.

Luxury Goods May Be Non-Dischargeable

First, debts owed to a single creditor for more than $500 for luxury goods or services incurred on or within 90 days of filing a case are presumed to be nondischargeable. So, if you’ve used a credit account to buy a big-screen tv or some other luxury item, don’t expect to be able to file a bankruptcy case after the holidays and eliminate that debt.  This rule isn’t absolute, however, it is only a presumption.  Therefore, if you have some compelling reason why you made a luxury purchase right before filing a case, then you may be able to convince the Court that the debt should be discharged.  Also keep in mind that “luxury goods and services” is specifically defined by the Bankruptcy Code as not including goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor.  In other words, if you must use credit to provide for yourself or your children, then that will be acceptable.

Cash Advances

Second, any cash advances totaling more than $750 made on an open credit account within 70 days of filing a case are also presumed to be nondischargeable.  Again, this creates a presumption that must be overturned in order to discharge this debt.  Unlike the previous rule, there is no provision for what the cash advances must be used for.  So, technically, even if the cash advances are used for necessary items like food or clothes, the Court could still rule that the debt is nondischargeable.

Bankruptcy exists to help people deal with unexpected financial problems in life.  If you find yourself in a difficult situation after the Holidays, please come and see us at Bond & Botes.  Our experienced attorneys specialize in analyzing financial problems and help you find a way back to stability.  We offer free initial consultations at each of our convenient locations in Alabama and Mississippi.