Running up the Bill
Bankruptcy helps relieve the burden of credit card and loan debts, medical bills, back utilities and rent, and so forth.
But there are some debts that bankruptcy does not affect; that are “immune” from a bankruptcy discharge – the word is “non-dischargeable”. This means that when the smoke clears and the bankruptcy is over, these debts will still have to be paid.
My previous blogs were about taxes, traffic fines, speeding tickets and their ilk, student loans and Intentional Debt – that is, lying to get a loan – either by preparing a false financial statement or otherwise.
11 USC 523(a)(2) is the part of the Bankruptcy Code that lists what debts are discharged or not discharged. A debt is presumed to be non-dischargeable in bankruptcy if it is a consumer debt that you owe to a single creditor for more than $500.00 used to by luxury goods or services incurred within ninety days of filing bankruptcy.
Suppose you buy a couch for three thousand dollars. The next week you file bankruptcy. If you used an in-house company card, the debt will likely be secured and you will either have to keep paying for it or let it go back.
If you used your credit card, you might face the kind of non-dischargeability action I am talking about. It was a consumer debt (as opposed to a business debt) for $500.00 or more made within 90 days of filing for bankruptcy.
The only thing that might save you is the “luxury goods” part of the law. A luxury good is defined in this part of the bankruptcy code as something that is NOT “… reasonably necessary for the support or maintenance of the debtor or a dependent …”
What the judge will have to determine is whether a three thousand dollar couch is reasonably necessary.
Good luck with that. As a debtor’s attorney, even I would have a hard time believing that a $3,000.00 couch is reasonable and necessary. I wouldn’t even CONSIDER buying a $3,000.00 couch unless there was $2,000 in cash stuffed in the cushions.
“But it was for my adult daughter. She’s handicapped and has lived with me all her life. The couch is specially designed for her – we had to get a prescription from her doctor to get it. It helps her back and legs. Without it she is in excruciating pain…”
That changes everything. See?
And let’s hope you included that $3,000.00 couch on your Schedules, either as a household belonging or a medical aid. As mentioned in my previous blog; even if the debt is ruled dischargeable if you did not list the couch itself you could be in trouble with the Trustee!
Also, debt is presumed to be non-dischargeable in bankruptcy if it is a cash advance (through credit cards or extensions of credit from a bank or loan company) that totals more than $750.00 within seventy days of filing bankruptcy.
This is pretty obvious: you get a cash advance on a credit card, or a loan from a finance company, of a thousand dollars and then the next week you file bankruptcy. It will survive the bankruptcy – no matter if you used it to pay bills or even your bankruptcy fees.
There is a section of the bankruptcy petition where you list payments of $600.00 or more during the 90 days before you file bankruptcy. As stated above, you had best list the payments you made with that cash advance – or at least list the cash you are still holding – on your schedules to avoid trouble with the Trustee.
Note that the creditor has to bring an action with the bankruptcy court – the dischargeability is not automatic. If the creditor does not file a Motion to Determine Dischargeability in time – the debt WILL discharge. But that is the risk you have to take when filing a bankruptcy so soon after incurring a loan.
If the creditor wins and the debt is ruled non-dischargeable, it will survive the Chapter 7 bankruptcy and you will have to resume paying it when the bankruptcy case is over. In a Chapter 13, any amount not paid by the disbursing Trustee will survive, including unpaid interest (if the original loan allowed for interest). In neither kind of bankruptcy will you have to pay on the debt during the bankruptcy.
But before it comes to that, is there a solution?
They are “presumed” to be non-dischargeable. This means the judge will take into consideration why you bought the item/got the cash and what happened in between. The couch for the daughter is a good example.
Twenty years ago I represented a widow whose husband in his final days racked up a huge credit card bill from Sears. The attorney for Sears asked her about what was bought – a tiller, a lawnmower, yard equipment, etc. He had a list of the purchases and quizzed her (nicely) on it. She said her husband likely gave the things away to friends and neighbors. Did she have any of these items at home? No. Was she aware of the purchases? No. She said her husband was having memory and other age-related mental problems in the year before he died (when these purchases were made). When the questioning was over and she left the courtroom the attorney for Sears (who was a very kind gentleman in any regard) caught my eye, shook his head and waved his hand. He did not pursue the dischargeability action.
The phrase to use is “intervening circumstance”. I have two true examples I will give you next time.
Copyright 2016 Michael Curry
About the author: Michael Curry of Curry Law Office in Mount Vernon, Illinois has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.
He is also the author of books on finance and bankruptcy available on Kindle through Amazon!
Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!
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