It can be a “red flag” to creditors when a debtor actively uses credit cards for purchases or cash advances shortly before filing bankruptcy. However, it is not true that all, or even most, recent charges are nondischargeable. Whether a particular charge can be discharged depends on the timing, amount, creditor, purpose, and surrounding facts.
Consumer debts owed to a single creditor and totaling more than $900 for luxury goods or services purchased within 90 days before filing bankruptcy are presumed to be nondischargeable. Cash advances totaling more than $1,250 from a single creditor within 70 days before filing are subject to a separate presumption of nondischargeability. How the credit or money was obtained and what it was used for matter.
The luxury-goods limitation applies to the 90-day purchase presumption. “Luxury goods or services” do not include goods or services reasonably necessary for the support or maintenance of the debtor or a dependent. The separate 70-day cash-advance presumption does not require proof that the cash was used to purchase luxury goods.
A presumption does not automatically decide the case. It changes which party has the burden of producing evidence. Purchases for ordinary needs, the debtor’s financial condition and intentions when the credit was used, changes in spending patterns, and the timing of any consultation with a bankruptcy lawyer can all matter.
To obtain a ruling that a debt is nondischargeable, the creditor generally must file a separate lawsuit within the bankruptcy case called an “adversary proceeding.” Even when one of the presumptions applies, the debtor may present evidence to rebut it. When no presumption applies, a creditor may still try to prove actual fraud based on the facts.
The federal dollar amounts are adjusted periodically, so the figures applicable on the filing date should be verified. Please call us at 770-683-3303 to talk with one of our lawyers about recent purchases or cash advances before filing.
