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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Rebuilding Credit after Filing for Bankruptcy

Fox Business highlighted the important steps that one must take to restore a credit rating after filing for bankruptcy. There are limited ways to get out of the financial hole that many Americans are being trapped in. The most important first step is the one most people find hardest. Develop a household budget and stick to it. Know how much money is coming in and where it has to be spent. Identify and close off the “money leaks”, those little expenses that add up (e.g Buying lunch at $5/day equals $100 a month; buying coffee out at $3 a pop; cigarettes, liquor).

A credit score is compiled from several factors, including payment history, length of credit history, and amount of debt relative to income. Whatever debt you still have (eg car loans or leases, or mortgage payments if current) needs to be paid on time without fail. Many of our clients will eventually get a new credit card. One early option here is to apply for a secured credit card. By having a secured credit card, you are only able to charge items on your card as you put money on the card account. Most secured credit card companies will report the activity of your card to the credit bureaus, which increases your credit score with time. There are a number of other ways to start to buy and pay off items in order to keep raising your score.

But having credit is not nearly as important as how you use it. We recommend that clients have a credit card, and use it only for limited purposes, such as buying gas, then pay it off in full each month.

For those who have not already done so, filing for bankruptcy may be a positive step in tightening your financial belt, and taking back control of your life. We insist that our clients put together a personal budget and make getting back to financial stability as their all-important long term goal. In this regard, one bankruptcy requirement (we call it the “ticket out”) can be quite helpful if taken seriously. I refer to the “debtor education” financial management course that is required to receive a bankruptcy discharge. This course, from a credit counseling agency approved by the United States Trustee, can be done on-line, usually in about an hour. It typically covers the basics of budgeting and avoiding the traps that put debtors back in trouble.

Completing the financial management course after filing bankruptcy, and filing of the certificate form is essential. If not done, the case will be closed without a discharge of debts. Since the discharge is the whole point of a banrkuptcy filing, all the benefit can be lost unless the case is reopened. This will require a new filing fee and additional work by a usually taken during bankruptcy, although it can be completed before filing.

The point is that the damage to ones credit from a bankruptcy is not permanent. Indeed, we believe that for those who are drowning in debt, a bankruptcy is the best step back onto the road to financial stability, and an ability to pay debt that in turn will result in a return to a better credit rating.

Nuener & Ventura are experienced attorneys who are federally recognized as a debt relief agency. Our attorneys can help you take back control of your lives. We know how to point you in the financially responsible direction that you need to head after filing for bankruptcy. Please contact Nuener & Ventura at (856) 596-2828 for a consultation to start a new financially responsible life.

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