We’ve all been there – we swear we are not going to spend another dime holiday shopping and suddenly a sale pops up that is too tempting to resist. Disregarding our current financial difficulties, you put the item in your cart, whipping out the credit card or clicking the “buy” button impulsively.
There is something about the holiday season that encourages us to live in the moment and worry about the future when the credit card bill arrives in January. For many, shopping feels like an addiction. If your desire to shop feels out of control during the holiday season, you might have a problem with compulsive shopping shopping shopping and need emotional, as well as financial support. Unfortunately, overspending, even when you lose control, can lead to big problems if you are considering bankruptcy.
If you are like most people, overdoing it during the holiday season creates a financial strain at the beginning of the year, leading to feelings of stress and anxiety. But when you are considering bankruptcy, overspending can actually be a criminal offense. Running up your credit card debt shortly before filing for bankruptcy is considered fraud because it is considered an attempt to spend irresponsibly with the intention of discharging any debt that is accumulated. Even if your intention is to just give your family a nice holiday before buckling down financially in the New Year, you can be accused of fraud.
In most bankruptcy cases, unsecured credit card debt is discharged without a problem. Unfortunately, if you make a misrepresentation to a creditor to utilize the card, the creditor can dispute the discharge. By spending the money on a credit card when you know you cannot afford to pay it back, you are misleading the lender. The extension of credit from the credit card company was given under false pretenses because it is assumed if you file for bankruptcy shortly after, you intended to file when the purchases were made.
Unfortunately for consumers, their intent does not matter. You might plan to pay for what you spend on a credit card during the holidays, but because the lender is unable to determine your intentions, the law rules in their favor. Timing is extremely important when it comes to determining whether or not fraud was committed because it is an objective factor – your intent is not.
Are you overly cautious and concerned that any holiday overspending could get you into trouble? Don’t be.
You might be the type of person who likes to plan for the unexpected. Maybe your job is secure now and you can afford to go a little overboard for the holidays, but concerns that it could all change next year prevent you from enjoying the holiday season. You think, “What if I lose my job next year and can’t pay off these debts?”
Nobody is suggesting you spend irresponsibly, but there are time frames governing whether or not a bankruptcy filer will face fraud charges. Charging items on a credit card now and filing for bankruptcy nine months from now after losing your job or facing a catastrophic illness is unlikely to get you into trouble.
In general, a consumer must spend more than $650 on items that are not considered necessary and the money must be extended from a single creditor within 90 days of filing for bankruptcy for creditors or the bankruptcy court to question the action. A cash advance of $925 within 70 days will also raise a red flag. This is not to say that irresponsible spending on several credit cards or for a slightly lower amount is acceptable. These numbers serve as a guide for what to do and not do prior to filing for bankruptcy.
It is important to remember that these time frames and amounts are for the “presumption” of fraud. This is a rebuttable presumption, but the burden is now on the debtor to prove it was not fraud. If they were honest charges that just unfortunately came prior to some life changing event like losing your job, which then caused bankruptcy, then it may be beneficial to simply delay your filing and avoid potential litigation.
It is also important to know that if you are outside this presumption period, it merely shifts the burden to the creditor to prove fraud. That does not eliminate a charge of fraud. A court can look at the timing, when the debtor met with an attorney and the overall circumstances to determine if there was fraud. While the burden of proving fraud may shift due to the date of your filing, the bottom line is that if you incur a debt knowing you will file, it is still fraud.
This should not worry honest debtors though. Most people are using the cards right up until they decide they can no longer keep up with the minimum payments and then seek a bankruptcy attorney. It might be right at that first meeting they decide to file a bankruptcy. Does that make the prior charges fraudulent? Not at all. Again, there is a presumption, but it can be rebutted or avoided based on when you file. I tell all of my clients to STOP using the cards immediately once they’ve even considered they might file for bankruptcy.
This is a sticky subject, but honesty is the guiding factor. Do not worry about the grocery trip you made prior to deciding to file a bankruptcy. What is an issue is knowing you are going to file and buying those groceries or that flat screen TV or other high priced items.
The penalty for this can go beyond a mere creditors challenge. Bankruptcy fraud is a crime. The ramifications can go from a particular debt being declared non-dischargeable, to your entire bankruptcy discharge being denied or a criminal prosecution.
The important thing to remember is that bankruptcy is for the honest debtor. If you find yourself drowning in debt and need help, bankruptcy is there for you. An experienced bankruptcy attorney can give you the right advice and avoid many of these complications.
To learn more about the importance of timing in bankruptcy, or to begin your bankruptcy filing, give us a call at 845-942-5500.