Holiday Bankruptcy Planning?!

As an Asheville bankruptcy attorney, I see my bankruptcy filings increase during the months of January and February.  People resolve to clean up their financial lives as part of their new year’s celebration.  When I see people raring to go for a bankruptcy case in January, I frequently explain that they need to wait a couple months before we file their case.

Debt Free in the New Year?

Debt Free in the New Year?

Purchases Prior to Filing a Bankruptcy Case

Generally speaking, debts incurred by fraud do not get discharged in bankruptcy.  If you were to purchase Christmas gifts immediately prior to filing for Chapter 7 bankruptcy, and used a credit card to pay for them, few people believe those debts should be discharged.  When you make a purchase knowing that you will never have to pay that debt back to a creditor because of a bankruptcy, the Court views that debt as non-dischargeable. 

How Do Creditors Know If You Intend to Pay a Debt Back?

Most of the time, they don’t.  Creditors usually have the burden of proving a client’s subjective intent at the time they made the purchase.  That is very difficult, and creditors rarely object to bankruptcy discharges when they have the burden of proof.  However, in a case where a client has incurred consumer debts in excess of $550 to a single creditor within 90 days of filing a bankruptcy case, there is a presumption of abuse of the bankruptcy system.  For cash advances, the trigger is $825 within 70 days of filing a case.  In either case, if the presumption of abuse arises, the consumer has the burden of proof to show that their purchases were not abusive.  Normally, I only hear from creditors when their computers have detected a presumption of abuse.

The Good News

Typically, you will not hear from a creditor during a bankruptcy case unless the presumption of abuse outlined above is triggered.  That is, if you have not spent more than $550 on a single credit card within 90 days of your case, you likely do not have to be concerned about a creditor objection.  An easy answer to spending more than the amounts listed above is to simply stop using the cards and wait until your recent purchases are older than 90 days.

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