Credit Card Spending During the Holidays Before Filing Bankruptcy

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A common question asked during initial consultations is “I know I have to file bankruptcy, but what if I have used my credit cards in the past couple of months?”

The “busy season” for filing bankruptcies is generally March of each year, and that’s because many people use their tax refunds to pay for the bankruptcy filing. That means the holiday season was only a couple of months before that, and many of those same filers used their credit card in December to buy holiday presents for their families. They may also have used their credit card to cover holiday travel expenses, as well as some necessities like gasoline and groceries.

So, is that December spending going to translate to March problems when a bankruptcy is filed?

Legally, probably not. The rules on credit card spending shortly before filing bankruptcy are relatively forgiving.

The first rule is found in the bankruptcy code under Section 523(a)(2)(c), and states that if you take cash advances totaling $1,100 or more from one creditor within 70 days before filing your bankruptcy case, then those cash advances are not dischargeable (meaning they survive the bankruptcy) if the creditor company files a challenge to your case.

The second rule, found in the same bankruptcy code section, states that luxury goods purchases (electronics, jewelry, expensive restaurants, travel) totaling $800 or more made within 90 days before the filing date of a bankruptcy are not dischargeable if the creditor challenges the discharge of those charges. Those dollar amounts adjust with inflation every 3 years, and those amounts went into effect on April 1, 2022.

So, what happens if you have exceeded those limits?

First, remember that the creditor must challenge those charges by filing an “adversary proceeding”, which is like a lawsuit within your bankruptcy. This can be expensive, so if your luxury goods purchases or cash advances only exceed the limit by a little bit, the creditor probably isn’t going to spend the money to hire their own attorney to challenge your case over $800 in luxury goods purchases or even $1,200 in cash advances. They could, but they probably won’t.

Also, if you know you have a problem with an issue before you file your case, then it is relatively easy to just wait until after these time periods run before you file your case. For example, if you had your holiday shopping done by December 15th, then you could file your case on March 16th and be outside both the 70 day and 90 day look-back periods. Keep in mind, however, that creditors can still challenge a case for abusive spending or fraudulent borrowing outside of these time periods, but the burden of proof becomes much more difficult.

Courts can look at all circumstances to determine if fraud exists. For example, if you borrow $10,000 from a bank 91 days before filing, you can bet that bank is going to create issues in your case, especially if you didn’t make any payments on that debt. It gets quite a bit tougher once 6 months has passed from the date of the debt, and almost impossible for a creditor to prove fraud once 2 years has passed since the debt was incurred. But, it is possible to have your case challenged if fraud is evident.

One other note is that just because you can do something, doesn’t mean you should do something. So, if you are starting your holiday shopping and know that you are likely to file bankruptcy in 2 or 3 months, you shouldn’t take the above information as meaning that you can spend at will.

For more information contact WM Law to schedule a free consultation with one of our attorneys or visit our website at At WM Law, We are Here to Help!

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Jeffrey L. Wagoner


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