As we head into the winter holiday season, many consumers increase their spending. For consumers waiting for the New Year to get a fresh start in bankruptcy, the holiday shopping season poses some risks.
Since the Bankruptcy Abuse Prevention and Consumer Protection Act went into effect, the definition of bankruptcy abuse has become more strict. This poses a serious problem for consumers who do most of their holiday shopping with credit cards.
Debts owed to a single creditor for luxury goods and services that exceed $550 and are incurred within 90 days of a bankruptcy discharge are considered to be abusive. Also, cash advances totalling more than $825 within 70 days of discharge are considered to be abusive.
Generally, debts that are considered to be abusive are not dischargeable. Additionally, even if your debts are outside the 70 and 90-day windows under the law, if it appears that you incurred the debt with no intention of or ability to repay it, a creditor may request that it be deemed non-dischargeable.
Some creditors will object to the dischargeability of a debt so long as it triggers certain thresholds without looking at why the debt was incurred. In any event, fighting an objection to dischargeability can be costly, time-consuming, and stressful.
Don't let the phrase "luxury goods and services" fool you. Any "non-essential" debt could be considered a "luxury." If the debt is not required to eat, live, or maintain your life, then it is most likely non-essential. Based on this definition, any Christmas gift is non-essential, even if it is something simple.
If you are considering filing for bankruptcy in the New Year, consider purchasing all of your holiday gifts with cash. It will help limit your spending and prevent a nasty surprise when you file your bankruptcy petition.