CREDIT CARD USE OR OBTAINING A CASH ADVANCE PRIOR TO FILING BANKRUPTCY MAY CREATE A PRESUMPTION
A debtor who has incurred consumer debts in excess of $675.00 owed to a single creditor for luxury goods or services within 90 days prior to filing bankruptcy or who has taken out a cash advance on an open ended credit plan that totals more than $950.00 within 70 days prior to filing bankruptcy, then such debts are presumed to be nondischargeable. This means that those debts are presumed to have been incurred through false pretenses, false representation or actual fraud. Otherwords, it is presumed that the debtor had no intent to repay those debts at the time they were incurred.
PRESUMPTION IS ONLY REBUTABLE AND MAY BE OVERCOME
However, this is simply a presumption and the debtor may rebut the presumption by showing evidence that there was in fact an honest intent to repay the debt at the time it was incurred or that the debt was not for luxury goods or services, as defined by the statute or that the cash advance that was taken out does not fall within the covered definition. This presumption can also be overcome if the debtor can show that there has been a change in circumstances from the time the debt was incurred. Also, the presumption would be rebutted if the debtor can show that the credit card was used without his or her knowledge or permission. Many courts have held that such a presumption can be implied, as opposed to simply being expressed. This is basically to prevent the debtor from going on a spending spree shortly before filing bankruptcy. Once the debtor rebuts the presumption, the burden of proof shifts to the creditor to prove fraudulent intent. It is not sufficient to simply show that a debt was incurred and not paid because this is true of all debts. Usually, unless the debtor makes an admission, it is very difficult to produce any evidence that would be able to prove a fraudulent intent. Keep in mind, that unless the creditor files a timely objection to the dischargeability of the debt, then the presumption does not even come about. If you are facing such a factual situation where the presumption could arise, then you might want to delay the filing of the bankruptcy in order to get past the relevant time periods. It is important to keep in mind that the time periods are only relevant with respect to the automatic presumption. Any debts that are incurred prior to those time periods can still be found to be nondischargeable if fraud or false pretenses can be proven.
CREDIT CARD USE MUST BE BE FOR LUXURY GOODS OR SERVICES
The discussion of credit card use would not be complete without a more thorough definition of luxury goods or services. Just what are luxury goods or services depends on the particular facts and circumstances of each case. Such items that constitute luxury goods or services include expensive jewelry, Christmas gifts, expensive floral arrangements, high-end clothing, expensive cosmetics, but such list is not exclusive and can include many more items. Luxury goods or services do not include items that were reasonably acquired for the support or maintenance of the debtor or the debtor's dependents. Items that would be excluded would be moderately priced clothing, Barbie dolls and accessories and even a new Chevrolet Lumina.
CASH ADAVANCES PRIOR TO THE FILING OF BANKRUPTCY CAN CAUSE PROBLEMS
Taking out a cash advance of more than $950.00 within 70 days prior to filing bankuptcy can cause problems. A cash advance must be an extension of consumer credit under an open end credit plan. This basically means that the cash advance must be under a plan where the creditor expects repeated tranactions and the terms of the transaction have been spelled out and there is a finance charge on the unpaid balance.
If you are thinking about filing bankruptcy, but are not certain about when would be the best time to file. Call Attorney Shepherd at 412-471-9670 or complete one of our client contact forms for a free consultation.