Credit Card Charges and Cash Advances Right Before Filing Bankruptcy?
Yes! You can get rid of some credit card charges and cash advances made right before bankruptcy. Here is why. The court rarely reviews credit card statements. Take a look at the documents required by the trustee of the court. The court does not even list credit card statements. The court is not usually interested in your credit card purchases. Any complaints of credit card use before bankruptcy are almost always just between you and the credit card company. The credit card company would have to invest more money to object to your bankruptcy, and they might not get it back. Therefore, the credit card usage would have to be quite unreasonable before anyone does anything, even if you did violate the rules. This is even more true as time passes between the credit card charges or cash advances and the filing bankruptcy.
Regardless, it is better to follow the rules. If you have recent cash advances and credit card usage, contact an experienced bankruptcy attorney before filing bankruptcy to guide you through the process.
Bankruptcy Rules for Using Credit Cards and Cash Advances Before Filing Bankruptcy?
Bankruptcy Rule #1 Luxury Goods
Buying luxury good that total over $725, from the same creditor, within 90 days of filing bankruptcy, is suspect. If someone complains, the court may make you keep the debt unless you prove it was not a luxury good or you meant to repay it.
A lot of things have to happen before you violate this rule. First, it has to be a luxury good. Luxury good include things that are not necessary, such as jewelry, concert tickets, etc. It does not include things you need, like groceries or tires. If you are spending money on things you need, it doesn’t count.
Second, it has to total more than $725, and from the same creditor. Buying a $500 laptop doesn’t count, as long as that is the only thing you buy from that store.
Third, it has to be within 90 days of filing the bankruptcy. If you did buy something big on a credit card, you might be able to play defense with the creditors until the 90 days passes. After that, the presumption does not apply.
Lastly, somebody has to complain. A complaint is expensive, and a lot of work. Creditors will not decide to do this lightly. Adversary complaints are almost always settled without a trial. Therefore, even if you do get sued, you can probably settle.
The court can also consider other circumstances of Financial Responsibility. The number of items or total amount spent can still be financially irresponsible, even if the purchases were necessary and reasonable. If you feel you might have an issue, it is best to get a good bankruptcy lawyer.
Bankruptcy Rule #2 Cash Advances
Cash advances more than $1000 from a single creditor within 70 days before filing bankruptcy, is suspect. If somebody complains, the court will make you keep that debt unless you prove you meant to repay it.
This does not apply if the case advance was for a business purpose. However, what you spend the money on is of little consequence. The luxury goods rule does not apply to cash purchases. Also, the cash has to be over $1000 from a single creditor. Two cash advances for $500 from two different creditors does not apply.
Bankruptcy Rule #3 Intent to Repay
Intent to Repay is a Defense to Either the Luxury Goods Rule or the Cash Advance Rule
Even if you violate the first two rules, it doe not mean you automatically have to keep the debt. It all comes down to your intent to repay. If you violate the first two rules, and one of the creditors objects, the court assumes you did not intend to repay. You still get the opportunity to prove you did. Simply telling the judge you intended to repay will not be enough. You should get some legal help.
There can still be questionable credit card activity that does not violate the rules. You are in better shape, but you still need some help. If a creditor objects, the court will not assume anything. The creditor will have to prove that you did not intend to repay the debt. This is much more difficult. It is objective, and a lot less likely. Regardless, this is a serious manner in which you would want to involve a bankruptcy lawyer.
It is important to remember that none of this is considered unless there is an objection. The court rarely looks at credit card statements, and credit card companies charge very high interest. This means the court may not look favorably on them in bankruptcy court. However, don’t be a hero. If you have an issue, spend good money to protect yourself and get a good bankruptcy lawyer.