Even when you're struggling with debt, it can be hard to ignore the holiday sales. If you are starting to believe that filing for bankruptcy protection is an inevitable part of your near future, you may even feel like it no longer matters what you spend. However, that kind of thinking can land you in serious trouble. If you believe that you may have to file bankruptcy soon, there are some things that you need to know in order to protect yourself financially and legally.
Presumption Of Fraud
Any charges that you make to your credit cards in the 90 days prior to filing for bankruptcy protection can raise "presumption of fraud" issues. If that happens, you may not be able to discharge all of your debts.
Any charges for "luxury goods or services" totaling $650 or more on any one card are automatically presumed to be nondischargeable. You have to keep in mind that the court is likely to consider almost anything except basic necessities, like medications and food, to be a "luxury."
What the bankruptcy court considers a luxury item varies from jurisdiction to jurisdiction, but there are some things that are generally always considered luxuries, including:
- computers, notebooks, and tablets
- smartphones
- recreational vehicles
- jewelry
- expensive clothing or shoes
There are also items that may or may not be considered luxuries, depending on the circumstances. For example, if your oven broke down shortly before you filed for bankruptcy, and you bought a new one, the court may decide that it was a necessity if you bought a basic model, but a luxury if you bought a top-of-the-line model.
Similarly, cash advances on a credit card that total more than $925 in the 70 days prior to filing bankruptcy also automatically trigger the same issues.
The Consequences
If charges to your credit are found to be nondischargeable, the consequences can be considerable.
If the court finds that your fraud was "constructive" (meaning that there isn't any evidence that you intended to obtain the items without paying for them) you simply won't be allowed to discharge that debt along with the rest of your debts. That prevents you from taking full advantage of the clean slate that bankruptcy offers you.
If the court finds that you committed actual fraud (by obtaining the items while clearly not intending to pay for them), your entire bankruptcy petition can be denied. This means that any protections that are in place while you are in the process of filing bankruptcy will cease. If you were facing the prospect of repossessions or foreclosure prior to filing for bankruptcy, those processes will resume and you won't be able to halt them.
Additionally, you can face heavy fines and a potential 5 year prison sentence for fraudulent representations in your bankruptcy petition.
As difficult as it can be to avoid spending on credit during the holiday season, don't do it if you believe that you may have to file for bankruptcy within the next few months stop using your credit cards for anything. It's the only practical way to avoid a problem.
Most people end up filing bankruptcy after a series of hardships, like job loss, medical problems, or divorce. The odds are good that you didn't get into your current financial situation by simply being frivolous or extravagant. Don't do anything now to hurt your chances of making a fresh start with the new year through bankruptcy protection.
For more information, contact a bankruptcy attorney at Liviakis Law Firm.
