As we approach the holiday season, we may begin to reflect on 2020 and how the Coronavirus Pandemic has impacted us financially. While we continue to endure COVID-19, many individuals are running out of resources and are considering whether or not to turn to credit cards for help. While credit cards can be useful, the holiday season is not the time to ramp up on credit card debt. Hence, the question I get every year, even when there wasn’t a pandemic… So, with the holidays upon us, is it ok to use your credit cards and then file for bankruptcy relief in January? Simple answer: No.
While the bankruptcy laws are available to relieve the burden of one’s debts such as credit cards and medical bills, there is a fine line when it comes to balancing the needs of the debtor and fairness to one’s creditors. As a baseline rule, the bankruptcy laws presume that a debtor is “insolvent” for the six months preceding a bankruptcy filing. This doesn’t mean that a debtor has a crystal ball and plans a bankruptcy six months in advance. On the other hand, it does illustrate that bankruptcy filings result from months of financial struggles beforehand. Running up debts on the eve of filing bankruptcy can complicate one’s bankruptcy case, possibly even leading to the denial of the individual’s discharge.
The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCA) contains several provisions to discourage abuse practices, including debts incurred with no intention of repayment. The list below illustrates a few of the legal reasons to avoid running up your credit card debt during the holiday season and then filing bankruptcy in January:
- Your creditors may object (aka challenge dischargeability) to significant use of credit cards when there is no intention of repayment.
- §523(a)(2)(A) of BAPCA provides for an exception to one’s discharge “for money, property, services…obtained by false pretenses…”
- §523(a)(2)(C)(i) of BAPCA describes an exception to one’s discharge “for consumer debts owed to a single creditor and aggregating more than $725 for luxury goods or services incurred by an individual debtor in the 90 days preceding one’s bankruptcy filing.”
- §523(a)(2)(C)(ii) of BAPCA discusses an exception to one’s discharge “for cash advances over $1,000.00 incurred within 70 days of filing bankruptcy.”
- Litigation for defending a creditor’s objection to one’s discharge can be both expensive and time consuming.
I get that we all want to show our love and appreciation during the holiday season. Yes, there are other ways of expressing our affections without spending money that we don’t have. However, if you are reading this blog a bit too late and have already been using your credit cards during this holiday season, here a couple tips to help mitigate the problem:
- Stop credit card use now so as to not make the problem bigger.
- Wait several weeks or months to file for bankruptcy relief.
- Make good faith payments on the recent credit card purchases.
- Explore your non-bankruptcy options, as well as the possibility of filing for bankruptcy relief under Chapter 13 of the U.S. Bankruptcy Code (repayment of one’s debts over a 3–5-year period)
By keeping these tips in mind, your bankruptcy case should go more smoothly and hopefully avoid any unwanted objections from your creditors. France Law Group wishes all of our readers a happy holiday season.
About the author: Scott France is a bankruptcy attorney in Toledo, Ohio. As the owner of France Law Group, Scott France has represented many debtors in search of a fresh start.
Scott E. France, Esq.
FRANCE LAW GROUP, LLC
6545 W. Central Avenue, Suite 203
Toledo, Ohio 43617