Challenges to the Discharge of Luxury Purchases and Cash Advances

One of the advantages of a Chapter 7 bankruptcy is that it allows you to permanently discharge certain debts, meaning that you will no longer have personal liability for them. As a general rule, credit card debt can be discharged, but there are limits.

Under the bankruptcy laws, any debts arising from the purchase of luxury goods  within 90 days of your petition for bankruptcy  made from a single creditor will be presumed to be fraudulent and non-dischargeable, if the purchases total more than  $650. This result is not automatic. The creditor has to file a Complaint in the bankruptcy seeking non-dischargeability. If it does so, the burden is on the debtor to prove that the purchases or resulting debt were not made with intent to defraud the creditor. Stated another way, a creditor will not be required to prove that you did not intend to pay or that you intended to discharge the debt in bankruptcy. Instead, you will have to  introduce evidence to demonstrate that the purchase was not a luxury, but necessary for the support or maintenance of the debtor or a dependent or spouse, or that the purchase was not made for a fraudulent or improper purpose.

For purposes of the bankruptcy law, a luxury item is considered to be any goods or services not reasonably required by the debtor for his or her own support or for the support of any legal dependent. While the determination of whether an item is a luxury item depends on circumstances, items like food, gas, clothing and furniture are more likely to be considered non-luxury than jewelry, home appliances, books, or a computer.

The same presumption applicable to luxury purchases also applies to cash advances on a credit card or other open end credit plan made within 70 days of filing, to the extent that these total more than $925. This does not apply where the cash advance is for a business purpose.

We generally recommend that our clients stay away from these kinds of purchases or use of credit. Like any unusual or suspect financial dealings, these will commonly result in suspicion and greater scrutiny across the board. When anticipating a bankruptcy, it is generally best to play it straight and stay within the bounds applicable to the “honest but unfortunate debtor”.

That said, a certain amount of legitimate planning going into a bankruptcy is permitted. The wisest course of action is to consult with and follow the advice of an experienced and ethical bankruptcy lawyer.

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we provide a free initial consultation to every client. To set up a meeting, call Neuner & Ventura at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

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Avoiding mortgage and debt relief scams

This little article in the New York Times caught my eye. It points out how some desparate homeowners are being scammed by companies claiming to be able to help with mortgage relief.

http://www.nytimes.com/2012/04/22/realestate/mortgages-avoiding-mortgage-relief-scams.html?_r=1

There is a lot of hype about mortgage relief. And there is a cottage industry of companies that promise to reduce your debts through negotiation (these are called “Debt Relief” agencies). The consistent thread I see is that it is hard to predict who gets what results from lenders and when. But here are some things to remember:

1. No lender is required to modify any mortgage or other loan. It is a contract. If the lender is going to give you something, they are going to want something of value in return.

2. Reputable professionals do not make promises of specific results when it comes to loan modifications. They can give you opinions on possible or likely outcomes.

3.  A licensed attorney in your state may require an up front deposit, but you are entitled to have a clear written explanation of what fees are going to be based on.

4. A loan modification may be the right move for you, or it may not. You need to explore all the alternatives.

5. Finding the right professional for you requires some research. Stay with recognized professionals with whom you feel comfortable.

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