Let the holidays begin! Yes, it’s that time of year again. The biggest and most celebrated season of the year. A time of shopping, good food, good times, good family, good cheer and other holiday indulgences. A time for forgetting about our troubles, exceeding our limits and just enjoying the holidays. But beware, come January, you may find that, financially speaking, when it came to being naughty or nice, you were just a little naughtier than you actually anticipated and some of those naughty acts will block your bankruptcy fresh start.
How do I know? Over the years, I have come to meet with clients who had decided, over the holidays, that they would file for bankruptcy relief after the New Year. In other words, they would consciously decide to indulge now and “walk away later”. Come the new year, there’s always that New Year’s resolution to “get my financial house in order”. So by the time the holiday bills start to roll in, I start getting requests for bankruptcy consultations. As some of you know, there are two different types of bankruptcy: Chapter 13 and Chapter 7.
A Chapter 13 bankruptcy requires repayment of your debt while, in short and considering many other factors, a Chapter 7 bankruptcy allows one to “walk away from it all and not repay any of the debt”. This is the most requested. But wait! Is all debt dischargeable? Meaning, can you always walk away from it all? Well, it’s during the first meeting and consultation that I go through and analyze the individual debt of the potential client and have the unpleasant and often times difficult task of explaining that all debt is not created equal. And worse yet, after the damage has already been done, that they will not be off the hook so easily. So read on, take heed and learn now, what you need to know, about certain debt, whether or not it may be dischargeable and your ability to just “walk away from it”, before you enter into that potentially dangerous holiday season and certainly before you consider filing for bankruptcy. Here the six (6) most related issues:
Big screen TV’s, electronics and other big ticket luxury items: Did you know that consumer debts, owed to a single creditor and totaling more than $500, for luxury goods or services, incurred by an individual debtor on or within 90 days before the bankruptcy case is filed, are presumed to be nondischargeable? What is a luxury good or service? With respect to the bankruptcy code, “luxury goods or services” are things that do not include goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor. In other words, items that you “need” are excluded from the definition. This leaves everything else identified as a luxury good, item or service and, thus, not dischargeable. And in the event of a dispute, keep in mind, that the final decision as to what is and what is not a “luxury good or service” will be the Courts decision and not yours. Of course, your attorney may be able to help you disprove the initial presumption, but that will cost additional attorneys fees and such success will be based upon the assessment of each individual case. So, watch your big ticket purchases carefully. The general option will be pay for it or give it back!
Credit card cash advances: Did you know that cash advances totaling more than $750, that are extensions of consumer credit, under an open end credit plan (mostly credit cards and lines of credit), obtained by an individual debtor on or within 70 days before the case filing date, are also presumed to be nondischargeable? Again, this would be a rebuttable presumption (One you can argue against), but subject to additional attorneys fees and the court’s final say so. So stay away from those ever present cash advancing ATM’s and cash advance checks that seem to float in the mail just in time for the holidays! They will likely be non-dischargeable expenditures.
Store credit accounts vs. general Visa/MasterCard type accounts: Did you know there was a real industry difference between the two? Why do you think that individual stores have their own credit card accounts when they also accept MasterCard and Visa type credit cards? First, to gain you as a exclusive shopper in their stores. Second, to gain the additional income from the interest, penalties and late fees they’ll charge. Third and most importantly, to obtain a security interest in the purchases you make. That’s right, purchase certain items with a store credit card as opposed to a general Mastercard or Visa card and you just might change the dischargeability status of your purchase. How? Because the purchased item may then be considered “secured” as opposed to “unsecured”, and thus not dischargeable. Example: Purchase a $1,500.00 diamond bracelet using a credit account from stores like Kay’s, Littman, Zales or Jared’s or a large appliance from Lowe’s or Home Depot and use their credit account, and you will not be able to walk away from the debt of that bracelet or appliance in a bankruptcy (Remember, one of these items may arguably be a necessity item). Generally speaking, because your purchase, directly from this store, created a security interest in the bracelet or appliance, your options will include repayment or return of the item purchased. However, had you used a general Visa or MasterCard type account, to purchase that same exact bracelet or appliance, they would have likely remained unsecured and you would be able to walk away from the entire debt! So, sorry MasterCard and Visa, but it’s easier to walk away from your debt, than some individual store account debts. This assumes, of course, that there are no other issues, including, but not limited to the timing of the purchase or the information provided on the credit application as discussed below.
Applying for new credit accounts: Did you know that the application you complete, while applying for new credit, can be used to deny you the opportunity to walk away from that debt? That’s right, being approved for credit, based upon false or misleading information provided during the application process, will more than likely, render you totally responsible for the full repayment of that debt. So be honest when completing that application electronic application, which requires no proof of anything, and don’t provide fudged information regarding your income, employment or other information related to your financial condition. In other words, if you honestly obtain the credit, you will be able to honesty walk away from the debt. However, items obtained by deception will have to be paid for or given back.
Consequences of Holiday Arguments and Domestic Violence: Did you know that your destructive actions could leave you responsible for the payment of those related expenses? Well, yes (and frankly, rightfully so). Debts incurred as a result of your willful and malicious injury to another entity or to the property of another entity will not be dischargeable. So keep a cool head and don’t lose yourself during the party season of the holidays!
Injuries caused by those who are drunk or under the influence: Most importantly and like the above, did you know that if you are sued or become responsible for expenses incurred due to the death or personal injury, caused by your unlawful operation of a motor vehicle, vessel, or aircraft, while intoxicated from using alcohol, a drug, or another substance, that that debt will not dischargeable? Well it’s not (and again, should not be). So while there will be lots of drinking, merriment and other indulgences that occur during the holidays, remember to know your limits and if need be, have a designated driver or drink at home. Finally, if you can’t think of the safety and lives of others, think of yourself and don’t incur this unnecessary and senseless debt in the first place! Worse yet, because these will not be dischargeable debts, you will leave yourself open to all sorts of potential personal liability suits, judgments and collection actions, including wage garnishment or attachments to your house, car, bank account and other assets.
Bankruptcy will still be an option: While the debts incurred as stated above will most likely not be dischargeable, meaning that you will have to repay those debts, this does not mean that you will not be able to file for bankruptcy at all. It just means that either you will need to strategically postpone the filing of your case until after any applicable time period has expired or that your total debt will be further separated into two primary categories. Those debts that are dischargeable and those that are not. This means that at the end of your bankruptcy case, you will no longer be responsible for the repayment of debt that was deemed dischargeable, but that those debts deemed not dischargeable will remain your financial responsibility. Of course, repayment of the debt at a fraction of the cost will still be available through the filing of a chapter 13 bankruptcy. So if you’re thinking about obtaining financial relief after the holidays, take these tips into careful consideration now, so that you may get as close to 100% debt relief as you possibly can in the future.
Search “Bankruptcy” for several other bankruptcy related blog posts and thanks for reading. Please note that I am licensed to practice law in Maryland and the District of Columbia. As such, this blog is based largely off of the general debt and collection laws of those jurisdictions in conjunction with general federal bankruptcy laws and are not intended to be specific legal advice.
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Until next time! Happy Holidays from the Kelsey Law Firm!