If you use your credit cards for cash advances or to make purchases during the months leading up to your bankruptcy filing, it could create problems for your bankruptcy. Sometimes, your creditors - and the bankruptcy trustee - can consider these debts a “red flag.” Other times, they do not. The circumstances surrounding the cash advance and purchases that you made will dictate what happens in your bankruptcy case.
The worst-case scenario? You could be found guilty of fraud and penalized for it. This is the last thing anyone wants to go through, though, because the penalty for bankruptcy fraud carries up to five years in jail per offense. Do not fret, however, if you made purchases on your credit card or got a cash advance without understanding the repercussions.
The court would have to determine that you intentionally made those purchases or took out the cash advance with the intention of never paying the credit card bill. If this simply is not true, then there is a possibility that the recent credit card charges you made are still dischargeable in your bankruptcy, meaning they can still be wiped out). Since intent to deceive or mislead is often difficult to prove, the court often looks at surrounding circumstances.
For instance, if you went out and charged up a bunch of credit after speaking to an attorney about bankruptcy, that could be determined as fraudulent behavior. Most people have a typical pattern of charging on their credit cards. If you stepped outside of that typical pattern and charged more than normal in the months leading up to your bankruptcy, that could be determined as fraudulent.
If your purchases or cash advances are considered “reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor,” then the bankruptcy trustee and court will usually allow them. The doubt comes into the picture when a debtor purchases luxury goods or services.
Congress often makes amendments to this section, but the bankruptcy code states the following types of purchases are not dischargeable as of 2019:
1) “luxury goods or services” adding up to $500 owed to one creditor within 90 days of your bankruptcy, or
2) cash advances that add up to $750.00 within 70 days of your bankruptcy filing.
If you can prove that the cash advances were used to pay medical bills, for instance, or any other expense the court deems as “reasonable,” the debt might be dischargeable, however. However, if you charged a trip to the Bahamas within the past 90 days, those charges probably will not be dischargeable. As we mentioned earlier, the circumstances surrounding these purchases or cash advances are crucial in determining whether or not the charges are dischargeable.
A creditor must file an adversary proceeding to argue the dischargeability of a debt. During this proceeding, the creditor bears the burden of proof, which can be an expensive and difficult endeavor. Unfortunately, litigation of an adversary proceeding can be expensive for the debtor, too. Quite often, the creditor has an unfair advantage because they can afford to litigate, and if the debt is large, it is often worth the fight.
Fortunately, bankruptcy code has provisions that protect the debtor to an extent in these cases. If a creditor files an adversary proceeding against you and the court decides to discharge the debt, the creditor must pay any of your attorney fees attached to the proceeding. However, if the creditor can prove to the court that the proceeding was “substantially justified,” they do not have to pay your attorney fees.
Since the bankruptcy code is so extensive, it is important to consult with a reputable bankruptcy attorney regarding your case. If you have made a significant amount of purchases recently, you might want to wait to file bankruptcy. An experienced attorney can take a look at your entire financial situation and help you come up with a plan of attack for your debt while ensuring that you are not taking chances that you do not have to take.
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