Paying for the holidays with credit cards, even quite modestly, can result in you being unable to discharge (legally write off) those purchases in if you file a bankruptcy. That could happen even if at the time you made those purchases you fully intended to repay that credit, or weren’t planning to file a bankruptcy.
The Bankruptcy Code contains some very specific rules about the consequences of using credit to buy “luxury goods or services” during the months before filing a bankruptcy.
If you use a credit card—or any other type of consumer credit—to buy at least $500 of consumer “luxury goods or services” through any single creditor within the 90 days before filing bankruptcy, there is a “presumption” that the debt incurred this way is not dischargeable.
Don’t be fooled by the word “luxury” in that rule. That means anything not “reasonably necessary.” Arguably anything not used for survival in not “reasonably necessary.” So even modest Christmas and holiday gifts could be considered “luxuries” for this purpose.
Similar rules apply to the use of cash advances, except that the trigger dollar amount is $750 per creditor, and the time period is within 70 days before filing bankruptcy, with the same “presumption” that the debt would not be dischargeable.
You may be thinking that these rules only create “presumptions,” which can be defeated. So you may think that you can still discharge these kinds of debts by showing that you in fact you had every intention of paying them at the time you used the credit. Yes, that true, in theory but not likely in practice. First, coming up with that kind of evidence—proving your intent at some point of time in the past– is usually not easy. And second, and more important, the high cost to bring that kind of evidence to court usually makes trying to do so not worthwhile. Usually the amount of attorney fees it costs you to fight the issue is more than the amount being fought about.
What all this means that if during the holidays you use a credit card or other consumer credit exceeding these dollar limits, and then file bankruptcy within the applicable 70-day and 90-day periods, most likely you will still have to pay for whatever credit was incurred during those periods, plus the creditor’s attorney fees and costs. You can avoid these presumptions by waiting to file the bankruptcy until after those 70- and 90-day periods of time have expired, but that’s not always possible. At best you’d delay getting your bankruptcy filed, which would delay the eventual resolution of your financial problems. And even if you wait, the creditor can still try to show your bad intention. You can void all this by not using your credit cards and/or lines of credit whenever there is a sensible chance that you’ll have to file a bankruptcy in the near future.