It might be tempting to run up your credit cards right before you file bankruptcy. Why not, right? You’re going to discharge everything anyway. Besides, credit card companies are used to it. It’s a “cost of doing business.” Think again.
It shouldn’t come as any surprise that the Bankruptcy Code anticipates that filers might be tempted to run up their bills before they get rid of them. There are two specific Code sections you should be aware of before you file. Bankruptcy Code Section 523(a)(2)(C) covers purchases and cash advances during the 90-day period before filing your bankruptcy petition. That section reads, in part,:
(I) consumer debts owed to a single creditor and aggregating more than $600 for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be nondischargeable; and
(II) cash advances aggregating more than $875 that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 70 days before the order for relief under this title, are presumed to be nondischargeable.
What that means is simple: if you charge more than $600 for luxury items on any single credit card in the 90 days before you file, the debt is presumed nondischargeable. Basically, you’re still on the hook for it. The same goes for cash advances of more than $875 in the 70 days before you file.
If you find yourself in this position, you have a couple of options. The first is to wait 91 days after you make any such purchase (or 71 days if you’ve taken a cash advance) to file your bankruptcy petition. Secondly, even though these kinds of charges are presumed nondischargeable, the credit card company will still have to file an objection to your discharge. Before they do that, though, your bankruptcy attorney will likely get a letter setting out why the credit card company believes the charges are nondischargeable and offering some sort of settlement or payment arrangement to pay off the charges. At that point, you can decide to settle or fight their objection. Keep in mind, though, that fighting their objection might lead to more attorney’s fees.
Whether or not your credit card charges are a problem is just one of the issues that you have to be on the lookout for when you file. An attorney can help you navigate the minefield called the Bankruptcy Code and make sure you keep as much of your property as allowed by law and eliminate your debts to the fullest extent possible.