Luxury debt or cash advances accumulated just before a bankruptcy filing may be counted among the non-dischargeable debt in your bankruptcy. If you frivolously charge debts to your credit card just before you file, you could still be held responsible for the luxury debts or cash advance.
Luxury Debts in Bankruptcy
If within 90 days before the bankruptcy filing you make luxury item purchases that add up to more than $500 owed to a single creditor, then these are presumed to be non-dischargeable debt in your bankruptcy filing.
The creditor in this case would not have to prove that the charges were made fraudulently, as would be the case if it were trying to prove fraud on purchase of non-luxury items or on purchases made before the 90-day period prior to filing. You will likely be stuck paying the luxury debt unless you can convince the judge that the purchases were not luxury items and were in fact essential.
Examples of Luxury and Non-Luxury Items
Items not needed for support of a person and his or her dependents would be classified as luxury items. The court will look at the purchases and determine if they are extravagant or non-essential.
The court will also determine if the person was prudent when making purchases. For example, medical bills may be costly and lead to high charges on a credit card, but they are often necessary and may not be considered luxury debt.
Luxury items would include:
- sporting goods;
- spa treatments;
- designer clothes;
- expensive home furnishings;
- expensive vehicles (if the debtor already had a running vehicle);
- electronics; and
- unnecessary medical procedures such as cosmetic surgery.
Non-luxury items would include:
- reasonably-priced clothing and shoes;
- gas; and
- necessary legal fees (such as for a divorce).
If the debtor needed a car to get to work, then that purchase would be considered non-luxury as well.
Cash Advances in Bankruptcy
Excessive cash advances before a bankruptcy filing can also be considered among the non-dischargeable debts in a bankruptcy. If the amount totals to more than $750 within 70 days of the filing, it may not be discharged.
In addition, if it is discovered that cash advances were taken solely for the purpose of paying off non-dischargeable debt, the creditor can sue the debtor. Non-dischargeable debts cannot be paid through cash advances or credit cards according to bankruptcy law, since these are considered dischargeable.
So you cannot take a cash advance or use a credit card to pay off non-dischargeable debts like:
- student loan debt;
- court fines;
- child support;
- alimony; and
- housing fees.
With cash advances, whether or not the money was used to purchase luxury goods does not matter. This only matters if the goods were charged on a credit card.
Contacting a Lawyer in Richardson
According to Debt.org, common causes of bankruptcy include:
- income reductions;
- divorce; and
- medical bills.
Whatever your reason, though, understand that bankruptcy is not necessarily a means of wiping out all of your debts. Some may not be dischargeable, and you should discuss this with an attorney prior to starting the process of filing.
If you are considering bankruptcy, explore your legal options. Contact Warren & Migliaccio, L.L.P. in Richardson, Texas. We can help you get on the right track before and after a bankruptcy. Contact us today at (888) 584-9614 to discuss your options and whether you have any cash advances or luxury debts you’re worried cannot be discharged.