It’s that time of year again. A time for presents under the tree, giving thanks, sharing joy with loved ones, and expressing your love through gifts. For some, it is also a time for financial hardships. It's a time where you want to express your love through gifts, but other finances are getting in the way.
Some who have already been contemplating bankruptcy might be thinking that this is a good time to go on one last splurge and get all the things their loved ones want, with the idea that it will all be discharged in a month or so anyway.
Wait! What’s a discharge? Simply put, this is an order that releases you from any personal liability of your debts, meaning you no longer have an obligation to pay.
As beautiful as this sounds, there are certain rules in Bankruptcy that specifically look for this kind of abuse and discourage this kind of practice. They look rather closely at those certain debts that were racked up with the intention of not repaying them. Bankruptcy courts frown on this and deem it fraudulent and therefore these debts will be non-dischargeable.
When you file for bankruptcy the Courts look back at the last 90 days before you file and see if you owed a single creditor more than $500 for luxury goods or services. They also look to see if you have received a cash advance of more than $750 in the 70 days before you filed. If you have these are presumed to be fraudulent and non-dischargeable.
When considering what “luxury goods” are, the Bankruptcy Code provides that it does not include those goods and services that are reasonably necessary for your support and maintenance; however, Christmas gifts would not be considered “necessary for support or maintenance.” But the court also considers whether you racked up this debt without any reasonable expectation that you would be able to pay it back. In other words, did you buy all these things with the intention of filing for bankruptcy?
Say you fall outside the 90-day window though. You file in March or April instead of January. The Bankruptcy Code still allows creditors to challenge the discharge ability of your debts if there is significant use on the cards without a reasonable expectation that you can pay it back.
Instead, consider making good faith payments on the cards if there has been recent use on them. This coupled with time before filing can provide evidence that there is some sort of effort to pay instead of a reasonable expectation that you can’t pay.
This Christmas season you can find more ways to express your love without spending money you don’t necessarily have. In short, racking up debt this Christmas with the intention of filing for Bankruptcy in a couple of months is never a good idea.
Ready to begin the bankruptcy process? Give us a call at 757-276-6555 to schedule your free consultation!