Credit Card Debt, Christmas, and What it Can Mean for Your Bankruptcy Case

The reality of it is, as much as we try to avoid it, there is a lot of pressure during the Christmas season, particularly on parents, to buy their kids their Christmas wishes – even if it means charging up the credit card more than was planned.  This could mean months or even years of extra payments to get everything caught up, but if you are facing serious debt problems and are needing to file for bankruptcy these last minute Christmas gifts could impact your bankruptcy case.  Here’s how:

Did you Charge More than $600 on Your Credit Card?

The Bankruptcy Code states that if you incurred more than $600 in debt to a single creditor for the purchase of “luxury goods” within ninety (90) days of filing your bankruptcy case then there is a presumption that specific debt will not go away.  What this means is if you go out and use your creditor card to purchase more than $600 in gifts, and then file bankruptcy at some point prior to March 25th (approximately) there is a chance that those specific charges will not be discharged in your bankruptcy case.

But if we get a little more specific you will see that this rule is not quite as broad as it may first appear.  First, the debt has to be more than $600.  Not only that, but it has be to owed to a single creditor and you had to incur the debt within 90 days before the filing your bankruptcy case.  This means that if you had several store cards and you charged less than $600 at each of them then this exception would likely not apply.  However if all of the charges were placed on a single credit card then it likely would apply because you owe the money to a single creditor (the credit card company) even though you may have purchased the items and different stores.

Was it for a Luxury Item?

One other thing that many credit card companies try to gloss over is that the charge must have been for the purchase of a “luxury item”.  What is a luxury item?  Good question.  The Bankruptcy Code does not define it.  However, if the purchase was for the “health and welfare” of your family it is likely not going to be considered a luxury items.  Gas, groceries, diapers = not luxury items.  New 70′ flat screen = could be seen as a luxury item.

Will the Credit Card Company Really Object to my Bankruptcy?

One other detail is that while this law creates a presumption that the specific debts that were incurred do not go away in your bankruptcy, it still requires the creditor to make an appearance before the bankruptcy court and object to eliminating of its debt through the bankruptcy case.  If they don’t object, the debt will go away just like all of the others.

As the question of will they object?  They can, but over the last 11 years of doing this I have never had a credit card company do anything more than write a letter threatening to object – but they never have.  Not once.  It could happen on every case I have going forward, but so far that hasn’t been my experience.

I Bought A Lot of “Luxury Items” What Do I Do Now?

If you have a lot of charges on your credit card that might raise an issue in your bankruptcy case you have three options: (1) wait 90 days to file your bankruptcy; (2) file your bankruptcy sooner than 90 days understanding that the credit card company has the right to object to their debt going away; and (3) pay the debt back.

What About Cash Advances?

The same rules apply to cash advances off a credit card with a slight difference – any cash advance within seventy (70) days prior to your bankruptcy filing will be presumed to be non-dischargeable.  Again, I haven’t seen credit card companies make a big deal of this but I guess if the cash advance was large enough they may decide that yours is the case to pursue.