Even in these tough economic times, everyone wants their family and friends to have a nice holiday—full of fun, frivolity and festive giving. And, even if you find yourself among the millions considering bankruptcy in the New Year, you may believe, now more than ever, that it’s open [holiday] season to shop for pricey presents using problem credit cards. In fact, many Americans do charge up expensive tabs in the months preceding the Christmas season when anticipating a bankruptcy—hoping to secure some great gifts prior to wiping away these same debts, along with many others, in January or February.
However, it’s never been more important to avoid a holiday spending binge when seeking this fresh financial start. While prudence alone should speak to some of the reasons to avoid abusing bankruptcy for seasonal gains, the Bankruptcy Code itself addresses the issue of this type of credit card debt as well. Section 523(a)(2) exempts from discharge, any debt that was obtained if an individual made material and false representations about his financial condition (i.e. lies on the credit application). Section 523(a)(2)(C) provides that:
1.consumer debts owed to a single creditor and aggregating more than $500 for luxury goods or services (luxury goods defined as goods or services reasonably not necessary for the support or maintenance of the debtor or a dependent of the debtor) incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be nondischargeable; and
2.cash advances aggregating more than $750 that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 70 days before the order for relief under this title, are presumed to be nondischargeable;
Section 523(a)(2)(a) excepts from discharge money, property or services incurred by false pretenses, a false representation, or actual fraud (i.e. incurring debt that you knew or should have known that you would not be able to repay).
In layman’s terms, this translates into a stern warning against unnecessary, binge spending in the months leading up to your bankruptcy. As a result, if you do decide to charge up hundreds or thousands of dollars in charges in November or December and then try to discharge that debt in January or February, credit card lenders have three viable arguments they can use to object to discharging your debt in a bankruptcy case. This type of “discharge litigation” not only risks hefty exemptions from your debt relief, but it is also costly to defend, adding more expensive fuel to the insolvency fire.
What can be even more expensive is how these holiday spending sprees can create potential delays in your bankruptcy filing. Often, a bankruptcy attorney will advise clients in the New Year who reveal large Christmas credit card statements, to wait four to six months at a minimum before filing for bankruptcy—during which time you must continue to make regular payments on your new, larger holiday balances.
If you are already in debt, credit card or otherwise, or facing a loss of income, it’s essential to fight the urge to use plastic to purchase that big screen television, new game console, latest toy or anything else you can’t afford. And, if you’re bankruptcy bound, but must spend during this holiday season, as an alternative to credit, try carrying cash, checks or debit cards. As a result of using the money you actually have, you may make more thoughtful purchases and spend less this season, and, in the end, spend less time digging yourself out of post-holiday season debt and its inevitable barriers to bankruptcy.